Pros and cons of hiring an independent contractor

Learn about the pros and cons of hiring an independent contractor versus an employee. 

Hiring an independent contractor (IC) has many advantages, but also some disadvantages. Before deciding how to staff a particular position, you will need to weigh the pros and cons and ensure that your selection will be accepted by state and federal auditors

Benefits of Using Independent Contractors

There are some big advantages to using independent contractors instead of employees, with financial savings at the top of the list. 

You will probably save money. While most employers pay CI per hour more than they would pay employees to do the same job, it often costs employers more to hire employees. When you hire an employee, you'll have to pay a number of costs that you don't have to pay credit unions, including employer-provided benefits, office space, and equipment. You will also need to make the necessary payments and contributions on behalf of your employees, including:

• your share of the employee's Social Security and Medicare taxes, which totals 7.65% of the employee's compensation
• state unemployment compensation insurance, and
• workers' compensation insurance.

All together, these expenses can easily increase your payroll costs by 20% to 30% -- or more.

You have flexible employees. Working with CIs allows employers more flexibility in hiring and firing workers, which can be especially beneficial for employers with fluctuating workloads. You can hire a microchip for a specific task or project, knowing that workers will be gone when the job is done. You won't have to deal with the potential injuries, costs, and legal issues that can come with layoffs and layoffs. 

You can also enjoy greater efficiency when using integrated circuits. Since most credit institutions bring specialized expertise to the job, they are often productive immediately, eliminating training time and costs.

You reduce your exposure to lawsuits. Workers have many rights under state and federal law, so there are many legal claims they can bring against their employers for violating these rights. Because credit unions are independent traders, they are not protected by many of these laws. Among the rights available to employees but not to credit institutions are:

• the right to receive at least the minimum wage and, for employees who qualify, overtime compensation at the rate of one-and-a-half times their regular hourly wage
• protection from employment discrimination on the basis of national origin, color, religion, gender, and so on (ICs are still protected from race discrimination, however)
• the right to form a union, and
• the right to take time off to care for a sick family member or bond with a new child.

Employees can also sue their employer for unfair dismissal. ICs cannot bring this type of lawsuit 

Disadvantages of Using Independent Contractors

After reading through the possible benefits of hiring a CI, you might think that you will never hire an employee again. But there are also significant limitations to the use of integrated circuits, and the risk is that your classification decision will be questioned by government agencies. 

You have less control over your workers. Unlike employees, whom you can supervise and keep a close eye on, independent contractors have a certain degree of autonomy in deciding how best to complete the task you have hired them to do. . If you interfere too much with an IC's work, you run the risk of making the IC look like an employee, who by law requires you to pay payroll taxes, workers' compensation insurance premiums, etc. If you want to have significant control over what and how your employees do it, categorize them as employees. 

Your workers come and go. Many employers only use CI when necessary for relatively short-term projects. This means workers are constantly coming and going, which can be frustrating and disruptive. And the quality of work you get from different integrated circuits can be very evident. Employers who want to rely on the same workers day in and day out are more interested in hiring employees than credit institutions. 

Your right to terminate your IC is subject to your written agreement. You don't have unlimited rights to enable ICs, like you can with your employees. Your right to terminate IC's services is limited by the terms of your written IC agreement. If you fire an IC in breach of the agreement, you may be liable for the breach of contract. 

You may be liable for injuries caused by CI on the job. Employees injured on the job are usually covered by workers' compensation insurance. In exchange for the benefits they receive for their injury, these employees waive their right to sue their employer for damages. Credit unions do not compensate workers, which means that if they are injured on the job, they can sue you and pay damages. 

You cannot own copyright to works created by IC. If you hire an IC to create a copyrightable work, such as an article, book or photograph, you may not be considered the owner of the work unless you use a written agreement to transfer ownership of the copyright from the IC to you. On the other hand, if an employee creates a work like this. So in most cases you automatically own the copyright. 

You are at risk with government audits. Federal and state agencies, especially the IRS, want to see as many workers as possible classified as employees, not ICs. The reason is financial: the more workers are classified as employees, the more tax and insurance money flows into government coffers, and the harder it is for workers to report or hide their income. them with the tax authorities. 

Some state and federal agencies may inspect your business if they believe you have misclassified an employee as a CI. At the federal level, you may face an audit from the IRS; The Department of Labor, which enforces federal minimum wage and hourly laws; The National Labor Relations Board, which advocates for workers' rights to form unions; or the Occupational Safety and Health Administration, a workplace safety law enforcement agency. 

At the state level, you may be able to bring to the attention of your state unemployment compensation or workers' compensation agency if a worker you have classified as an IC is claiming benefits. You may also face an examination from your state's tax office.

​​​​​​​Yoel Molina, Esq. (AKA “Mo”)

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