C2C, or Corp-to-Corp, employment is a business-to-business (B2B) arrangement where one company hires another company to provide a service. In this model, the individual who performs the work isn’t a direct employee of the client company. Instead, they are an employee or owner of their own separate, incorporated business entity, typically an LLC or S-Corp.
Instead of a typical paycheck, the individual’s corporation invoices the client company for the services rendered. The relationship is governed by a contract between the two businesses, not by a standard employer-employee agreement.
Why Do Companies Use C2C Arrangements?
Companies use C2C arrangements to access specialized skills for specific projects without the long-term commitments and administrative burdens of hiring a traditional employee. It’s common in industries like IT, engineering, and consulting, where a business might need an expert for a short-term, clearly defined project.
From the client company’s perspective, this arrangement can simplify their workforce. They aren’t responsible for withholding and paying the individual’s payroll taxes, providing benefits like health insurance or a 401(k), or adhering to many of the labor laws that apply to full-time employees.
C2C vs. W-2 vs. 1099: What’s the Key Difference?
Understanding C2C is easiest when you compare it to other common employment classifications:
- W-2 Employment: This is the most common form of employment. The individual is a direct employee of the company. The employer is responsible for withholding income taxes, paying their share of payroll taxes (Social Security and Medicare), and often providing benefits. The employer dictates when, where, and how the work is done.
- 1099 Independent Contractor: In this arrangement, the client company hires a self-employed individual, not a business entity. The individual is responsible for paying all of their own taxes, including both the employer and employee portions of payroll taxes, and for covering their own business expenses and benefits. While the client can specify the final result, the individual has more control over how the work is completed.
- C2C Employment: This is similar to a 1099, but the relationship is between two corporations, not a company and an individual. The contractor must have their own registered business. This adds a layer of liability protection and more tax deduction opportunities for the individual. It also can reduce the risk of worker misclassification for the client, as they are contracting with a legitimate business, not an individual.