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Employment Taxes | Employment Law |
Employee or Contractor | Employee Benefits
Employee or Independent Contractor
Independent contractors are individuals who are
in business for themselves and hire out their labor to clients. Often, business
owners prefer to hire independent contractors rather than maintain employees because
of the contractor's unique advantages. By hiring an independent contractor, the
small business owner does not have to pay the employer's portion of the Social Security
tax, unemployment taxes, workers' compensation insurance premiums, or employee benefits
- thereby saving 30% or more in employee costs.
Employers are cautioned to be extremely careful not to misclassify a worker as an
independent contractor. Such misclassification can lead to the employer being held
responsible for uncollected income taxes, Social Security taxes, unemployment taxes,
and penalties for not having adequate workers' compensation coverage.
Different federal and state government agencies have different ways of assessing
whether a worker is an employee or an independent contractor. Among those agencies
are the IRS, the U.S. Department of Labor, state taxing authorities, and state unemployment
and workers' compensation agencies.