So you want to Hire? Employee vs Independent Contractor

Decisions –  which type to hire?

When businesses need to hire, they many times want to hire … an independent contractor.  I get it.  There are benefits.

Generally speaking:

• Employers want workers to be independent contractors instead of employees.
• Workers want to be employees instead of independent contractors.

So, let’s jump in and talk about the pros and cons of independent contractors.

P.S. as we continue, here is an important link to the IRS about this topic: https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

Independent Contractor benefits

Let’s start by looking at some of the benefits for you, the business owner, if you choose to hire an independent contractor instead of an employee.

FICA taxes

When you have an employee, FICA is split 50-50.  The employee pays part of FICA and your business pays the other part of FICA. If they are an independent contractor, they are required to pay ALL of it. You save money. Their loss is your gain.  Yes, that’s one big reason many employers want workers to be independent contractors.

Payroll

No Payroll Processing.  Great news, right? Less red tape.

• You don’t have to issue formal paychecks with federal and state taxes calculated for the worker.
• You don’t have to schedule the time and effort to then remit those taxes to the Federal and State governments.

Unemployment taxes

Another savings to you.

• You don’t have to submit Federal Unemployment Taxes.
• You don’t have to submit State Unemployment Taxes.
• Not only do you save money, but you save time and effort.

Health insurance and benefits

No worries here. They are not employees. This one alone is an attention grabber for you.

Laws & Regulations

Talk about saving time! With employees, you may also think you need someone just to do HR (employee handbooks, overtime, and more).

So, as the benefits keep adding up, why would you even consider hiring a worker as an employee?

But there are reasons . . . keep reading.

Independent Contractor – be careful

Their time

As independent contractors, they don’t have continuously set times. So, they may work at 2 pm or they may work at 2 am.  They are hired to do the “work”, but they don’t have controlled hours like an employee would have.

How & where they work

In addition, you are not to control them as an employer would. Controlling could mean:

• Assigning them to sit at a certain office or desk.
• Requiring them to use a computer owned by your business.
• Training and supervising them in order to have them accomplish certain work.

Work for others

They have the ability to contract with others. And again, it may be during the day. When you are working on your business, they may be working for someone else at that exact time.

Important: You may not have a choice

As you go through the pros and cons, you may decide that the pros of hiring an independent contractor are great. Or you may realize you really want more control and want the worker to be an employee.

You can’t have it both ways

You have to choose. This is the difficult conversation I’ve had with clients . . . because . . . they want it both ways:

• They want to pay a worker as an independent contractor
• They want to treat a worker as an employee

But you can’t legally do this. The reality is you can’t classify a worker as an independent contractor and then treat them as an employee telling them: “I want you to work 40 hours a week from 8-5, work at a specific desk daily with our business equipment, and we will supervise and train you”.

If you do try to have it both ways, you are:

Decide what your business needs. Hire and classify correctly. Protect your business.