Fullerton Unfiltered – Episode 950

Hiring Done Right: W-2 Employees vs 1099 Contractors Explained

Host: Brian Fullerton
Date: April 8, 2026

Episode Overview

In this episode, Brian Fullerton tackles a fundamental but often misunderstood business decision: correctly classifying help as W-2 employees or 1099 contractors. The episode is a candid, no-nonsense guide for lawn care and landscape business owners—especially those in their first few years—aimed at helping them avoid costly mistakes, IRS troubles, and inefficiencies that can choke business growth. Drawing on personal experience and industry insights, Brian explains the risks, benefits, and real-world implications of payroll compliance, offering both practical definitions and invaluable mindset shifts.

Key Discussion Points & Insights

1. The Cash-Pay & Misclassification Trap

• Starting Out: Many new business owners begin by hiring friends, family, or acquaintances and paying cash for labor (“trimmer guy,” “parking lot shovel team,” etc.).
• Progression: As businesses grow (e.g., crossing $50K, $100K in revenue), this casual arrangement becomes riskier—legally and financially.
• Pain Point: At year-end, owners are often unsure how to handle taxes and official records for these workers, especially if significant money has changed hands.
  • “The only thing worse than 1099-ing him is just strictly paying him cash.” – Brian (03:10)

2. Breaking Down W-2 vs 1099

Definitions & Distinctions – [08:30]

1099 Contractor:

• Hired for their own business/service, with their own tools, schedule, insurance, and FEIN.
• Operates independently; receives a 1099 form for services rendered.
• Typical use: Subcontractor does a discrete part of a bigger job (e.g., irrigation install on a landscape project).

W-2 Employee:

• Uses your tools, follows your schedule, wears your uniform, and is paid through your payroll system.
• Taxes and withholdings handled automatically (federal, state, local).
• Key Rule: “You cannot 1099 your employee or someone who's behaving like an employee at your company.” (09:30)

Red Flags:

• Misclassification can trigger audits, penalties, fees, and back taxes.
• “There's going to be a lot of red flags that can get triggered and caught up in this. And then there's taxes and penalties and interest that could turn this into a labor issue that could come back to bite you.” (10:15)

3. Mindset Shift: The Real Cost of Shortcuts

[After the break – 14:15]

• Brian’s Background: Growing up hustling, maximizing “gray areas,” and running side gigs for extra cash.
• Message: Staying in that mindset keeps you small, vulnerable, and unprepared for legitimate business growth.
  • “I come from the hustle side of life…Not even blue collar, but just lower income mentality. It was like always take your pop cans back. Wealthy people don't take their pop cans back.” (11:20)
• Mindset Change: “That’s actually, a mechanism designed to keep you there and it’s not benefiting you…It’s not doing you any favors long term.” (12:30)

4. Why Go Legit with Payroll?

Compliance and Financial Ramifications – [14:14]

• Payroll Providers: Gusto, ADP, Paychex, bookkeepers—get on a solution asap.
  • “This is a pick up the phone and call somebody tomorrow suggestion, because it is that important.” (14:56)
• Consequences of Avoidance: More businesses fail from tax noncompliance (payroll, quarterly, annual, sales) than from sales or profit issues.
• Delaying Implementation?
  • “It's compliance…More people go out of business for this kind of crap than any other thing in business.” (15:10)

5. The (Hidden) Cost of Cash-Paid Labor

True Cost & Lost Opportunity – [18:24]

• Labor Cost Reality: A $20/hour employee often costs $35–$37/hour when payroll taxes and overhead are included.
• Pricing: Undercutting competition because of lower “overhead” only works short term, and ultimately costs profit and growth.
  • “You could have been charging the same market rate, sold a higher touch relationship and, you know, made an extra $10 per cut…you probably lost $80,000—but not knowing your numbers.” (19:05)
• Shortcut is Not a Shortcut: Avoiding payroll means you’re not learning critical business skills: sales, financial management, legitimate growth, or creating a sellable business.
  • “You shortcutted the shortcut. The shortcut is your budget. The shortcut is payroll. The shortcut is paying taxes…” (20:10)

6. The Big Risks

• Audits & Back Taxes: IRS is laser focused on two things—excessive 1099s (should be W-2s) and small owner salaries with massive distributions in S Corps.
  • “Think about all the penalties, fees and interest on those Ms. Categorizations of employment help.” (24:08)
• Reputation & Saleability: Businesses that aren’t run legitimately don’t have credible financials and thus can’t be sold for value later.
• Workers’ Comp Disasters: If something happens (accident/injury) and a cash-paid worker is involved, owner is completely exposed to lawsuits and significant payouts.
  • “God forbid he has an accident. He's a cash pay employee. Cuts off his freaking leg...He is going to win big. Like six and seven figures big out of you.” (38:45)

7. Leading by Example: Brian’s Business Evolution

• Transparency: Brian shares his transition from running a client-heavy, residential-focused business to a streamlined, mostly commercial enterprise approaching $800K–$900K rolling 12 revenue.
• Improvement Wasn’t Easy: It was painful but necessary to “grow up” and adopt proper payroll and compliance systems.
  • “It was a pretty big teeth pull for me...But we've always had people in one way, shape or form getting a paycheck. That's been pretty consistent for a while.” (33:14)

Notable Quotes

• On Classification:
  “You cannot 1099 your employee or someone who's behaving like an employee at your company.” (09:30)

• On Mindset:
  “A little bit of mindset shift and a little bit of brain surgery on you guys today if you'll stick with me for just a few minutes.” (12:50)

• On Compliance:
  “This is a pick up the phone and call somebody tomorrow suggestion, because it is that important…it's a compliance conversation.” (14:56)

• On Shortcuts:
  “The shortcut is doing it the right way. That is the shortcut. Don't shortcut the shortcut.” (39:22)

• On Choosing Employees:
  “Imagine…some guy’s like, hey, man, I got some back taxes, I got some wage garnishments, but I’m a solid, hard worker. I just need you to pay me $25 an hour cash under this table…That is not your guy. Think about it. The guy lacks integrity.” (37:50)

• On Growth:
  “It doesn't make you better as a business owner by not charging for these things or equating these things into your overhead, it makes you lazy.” (29:47)

Important Segment Timestamps

| Timestamp | Segment | |-------------|------------------------------------------------------------| | 00:30–04:00 | Why cash payments/1099s are tempting—but dangerous | | 08:30–10:30 | Definitions: 1099 vs W-2, with examples | | 14:14–15:10 | Urgency of setting up payroll compliance | | 18:24–21:15 | True cost of employees and “shortcuts” | | 24:00–27:00 | Audit risks and IRS focus | | 33:14–36:30 | Brian’s own business journey and payroll evolution | | 37:50–39:22 | The big risk of hiring “cash only” workers | | 39:22–41:00 | Final advice & industry mindset shift |

Actionable Takeaways

• If you hire help, put them on payroll from day one.
• Use a trusted payroll provider (Gusto, ADP, Paychex, etc.)
• Don’t “shortcut the shortcut.” Going legit is the real shortcut to business growth.
• Recognize misclassification or paying cash exposes you to major risk—financial, legal, reputational.
• Hold yourself to a higher standard. Systems and compliance build a sellable, valuable business.

Closing Message

Brian closes with heartfelt advice—drawn from hard-earned experience—urging every listener to treat this issue with seriousness and not perpetuate off-the-books labor practices. He reminds new and veteran owners alike: “It doesn't make you better, it makes you worse in my opinion…Please treat it serious and let's put an end to this stigma in our industry of doing things this way.” (40:00)

For more educational content and resources, or to join the upcoming LMN & Attentive webinar, visit LawntrepreneurAcademy.com.

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