Advantages/ Disadvantages of Hiring Independent Contractors
Employee or Independent Contractor?
• Labor cost reduction – Companies can get the same or better services for less money because there are no employment add-on costs.
• Supplies and office space cost reduction – Independent contractors provide their own equipment, materials and office space.
• Liability reduction – Employers are not automatically responsible for any injuries independent contractors may sustain while providing their services or for wrongful termination, job discrimination or sexual harassment lawsuits. However, because many of these areas are highly regulated by state and federal law, employers may still be liable under certain circumstances. Contact legal counsel for more information.
Misclassifying employees as independent contractors is potentially a serious liability for employers. Typically, misclassifying an employee can expose employers to federal sanctions and investigations, state audits and penalties, and unexpected unemployment and workers’ compensation lawsuits.
Hiring an independent contractor offers employers many advantages. Unlike for traditional employees, employers do not pay taxes on independent contractors’ wages, and are not expected to provide benefits. Employers often save 30 to 40 percent on labor costs by using independent contractors. In addition, as independent contractors are generally hired for a specific period or project, employers have no obligation to rehire them after each contract period or project is complete.