Independent Contractor or Employee?

In: Business and Management

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Employee or Independent Contractor?

When choosing whether to classify a worker as an independent contractor or an employee the employer has many tax related and non-tax motivations to choose the former. The biggest motivations are the many taxes that the employer will not be responsible for withholding if they choose to classify a worker as an independent contractor. One of the largest responsibilities of an employer is the role it plays as tax collector for the government. If an employer is able to classify its worker as an independent contractor rather than an employee they would not have to worry about withholding federal income tax, FICA taxes, FUTA taxes, and state income taxes. Instead this burden would fall upon the independent contractor when tax season comes around.
There are non-tax benefits for the business in choosing to classify a worker as an independent contractor as well. Employers do not have to worry about paying into workers’ compensation plans for independent contractors, they do not have to pay health or welfare benefits, pay into pension plans, or reimburse business expenses. With all of those pros to classifying a worker as an independent contractor you have to wonder why businesses choose not to.
Along with those many benefits there are also a few disadvantages. Independent contractors, by definition, do not work set hours which means they are free to come and go as they please which could lead to schedule disruption. There are risks of disloyalty to the company that are increased by hiring as an independent contractor because their livelihood is not connected with the business entity. A third major disadvantage is that the “companies may not own the copyrights on materials created by independent contractors” (Durban, 2010). Those negative alone certainly do not seem like they would do enough to dissuade an…...

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