What is W-2 employee?

A W-2 employee is a worker the business directs and controls, named for the IRS Form W-2 that reports their annual wages and withholding. The employer withholds income tax, Social Security, and Medicare from each paycheck, pays the matching employer share of FICA plus FUTA and state unemployment tax, and typically provides benefits and workers' compensation.

That makes a W-2 hire more expensive and more administrative than a contractor, but it also gives the employer full control over how, when, and where the work is done, and the right to the worker's output by default.