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Independent Contractor or Employee?


Independent Contractor or Employee?

I have a growing business, do I want to hire new employees or use independent contractors? …

We hear this question all the time. Small business owners can often save money by using independent contractors instead of hiring full time employees. By using independent contractors, the business does not have to withhold taxes, pay Social Security, Medicare, Worker’s Compensation premiums, or benefits such as health insurance and vacation. However, such short term savings will invariably not hold up to IRS scrutiny if it is deemed that the contractor should have been classified as an employee. So, what is the definition of an independent contractor? In a nutshell, an independent contractor works for themself, not for you. You are their client, not their employer. You can’t control their hours, nor control how they perform their work. Contractors work for multiple companies, not just one company. Contractors usually do not work set hours. Contractors typically use their own equipment, tools and technology. Contractors are typically compensated on a job or project basis, not on an hourly basis.

And last but not least, Independent Contractors should carry their own Liability Insurance and their own Worker’s Compensation Insurance, and the contractual agreement between both parties should clearly state the rights and obligations of both parties.