More CPG founders are searching for fractional hires, field reps, and consultants to stay nimble while scaling. But there’s one area that’s often overlooked—compliance.
Misclassifying a contractor can cost you. Between IRS audits, back taxes, and potential lawsuits, founders who get the structure wrong risk more than just paperwork headaches.
This guide breaks down the three main options—W2, 1099, and Corp-to-Corp—so you can scale your team responsibly and avoid compliance pitfalls.
Why Contractor Classification Matters in CPG Hiring
The more flexible your team, the more important it is to stay compliant.
Fractional hires give brands speed and adaptability. But the moment a fractional executive or sales consultant starts looking and operating like an employee, you open yourself up to misclassification risk—especially with the IRS and Department of Labor taking a closer look at contract-heavy businesses.
Compliance isn’t just legal—it’s strategic. It protects your brand, builds trust with talent, and ensures smooth transitions when you eventually convert short-term help into long-term team members. \

Breaking Down the Three Models: W2, 1099, and Corp-to-Corp
Let’s look at the three ways to structure contractor engagements in CPG:
- W2 Employee (via third party):
- Hired through a firm like Ace. We manage payroll, withhold taxes, and provide access to benefits. You direct the work. This is the cleanest and safest structure for most recurring or ongoing work.
- 1099 Contractor:
- Independent worker responsible for their own taxes, benefits, and insurance. Easy to misuse—especially if the contractor acts like an employee or lacks full independence. Increasingly scrutinized by state and federal agencies.
- Corp-to-Corp (C2C):
- The contractor has their own legal business entity (LLC/S-Corp), business insurance, and a tax filing history. This offers flexibility but requires documentation and vetting.
As Andres Rodriguez explained in a recent conversation, Ace avoids 1099 engagements entirely—preferring W2 or Corp-to-Corp models that ensure compliance and protect both sides.
Why Ace Recommends W2 for Most Fractional Talent Engagements
When you bring on fractional hires or contract sales leads, it’s often for real, ongoing work. That means managing hours, tracking deliverables, and having them integrate into your team—even if only part-time.
W2 solves that cleanly.
When we hire on your behalf as the employer of record:
- You keep payroll off your books
- We handle all taxes, timesheets, and paperwork
- Talent gets paid weekly and has access to benefits
At 22 hours/week, they unlock entry-level benefits. At 30 hours/week, they access the full suite. This makes it easier to attract and retain high-quality professionals—especially in today’s market where healthcare access is a differentiator.

When Corp-to-Corp Makes Sense (And the Rules That Apply)
Corp-to-Corp offers flexibility when done right—but not every contractor qualifies.
Here’s when we recommend it:
- The individual has a legally registered LLC or S-Corp
- They carry liability insurance
- They’ve filed consistent business tax returns
- They’re working independently and on multiple projects
This model often makes sense for senior-level consultants who want to retain their business structure but still engage in defined contracts. We use this model selectively—and only when documentation is rock solid.
Why 1099 Is Risky in Today’s Compliance Climate
The days of casually bringing on a “1099 contractor” with no formal review are over.
Government agencies are cracking down:
- IRS: Can reclassify workers retroactively and apply tax penalties
- DOL: Targets wage violations and misclassification under labor laws
- States: Implement their own thresholds and penalties, especially in states like California and New York
If a contractor only works for you, follows a set schedule, and relies on your systems—they probably aren’t a 1099, even if you call them one.
Ace avoids this model altogether because the risk outweighs the convenience.
Choosing the Right Structure for Your Talent Strategy
Here’s how we guide CPG founders through the decision:
- Choose W2 when:
- The role is ongoing or high-touch
- You want to control deliverables and schedule
- You value access to benefits and weekly pay for talent
- Choose Corp-to-Corp when:
- The contractor operates their own business
- They meet IRS independence standards
- They carry business insurance and file taxes under their entity
- Avoid 1099 when:
- You want control over the work
- The contractor only works with you
- The contractor doesn’t meet IRS independence criteria
Final Thoughts: Compliance Isn’t Optional—It’s a Growth Lever
Flexible hiring isn’t just about filling roles faster—it’s about doing it smarter.
By aligning your contractor structure with legal standards, you can protect your brand and keep talent happy. You’ll also move faster when it’s time to scale, convert, or transition contractors into long-term roles.
At Ace, we help CPG founders stay compliant while building high-performance teams. Whether it’s a fractional executive or field sales talent, we make sure the setup supports your strategy—and stands up to scrutiny.