The Pros and Cons of Hiring Independent Contrary
If you own a business, one of the most important decisions to make is whether to hire full-time employees or use IC or independent contractors. While the two classifications seem similar, they both come with a wide variety of unique advantages and disadvantages.
Advantages of Independent Contractors
ICs allow you to save on taxes and worker’s compensation insurance. While they may be paid more per hour than an employee, you end up saving money in the long run. There are numerous expenses that come with hiring regular employees.
As well as the cost of maintaining office space and providing space for employees with the equipment necessary for their job, you’re also required to pay part of their Social Security and Medicare taxes. In addition, you must pay for state unemployment compensation insurance and worker’s compensation insurance.
This does not even consider any extra benefits you provide your staff, such as insurance, paid time off, and/or retirement vehicles like 401Ks. Paying for all of these can become a huge dent in your business’s finances, especially if you own a small startup.
Less Legal Liability
Under state and federal laws, employees have an array of legal rights, which mean that they can bring in a wide variety of employment-related lawsuits if they feel violated. While ICs do have some legal rights to sue you, they have far less protection. Employees may also sue employers for wrongful termination. ICs cannot bring such a lawsuit, as their rights to termination disputes are spelled out in the independent contractor agreement created by you.
Increased Staffing Flexibility
By hiring ICs, you have much more freedom to staff your company however you see fit. This allows you increased flexibility to adjust your staff based on fluctuations in the market. This freedom can become valuable when you’re just starting your business and aren’t sure what kind of demand your products and services will see.
Disadvantages of Independent Contractors
One of the great advantages of ICs is the lack of oversight, training, and physical space they require. However, you have little control over how they actually do the work you hired them to do.
By giving them complete freedom, you are accepting some frustration. Giving workers freedom can be difficult for some business owners that prefer that the work is done using specific processes and/or tools. It is vital that you don’t interfere too much with IC’s work since doing so can result in the IRS re-classifying them as employees, which can result in penalties and expenses.
Increased Risk of Audits
As mentioned earlier, hiring ICs automatically increases your chances of being audited by the IRS, as the tax agency has a vested interest in ensuring that you maintain appropriate relationships with independent contractors. The bottom line is, if you hire ICs, be sure you take the appropriate steps to ensure that your contractors are truly “independent,” or it can cost you big time.
While ICs cannot sue your company for wrongful termination, like employees, that does not mean they have zero rights to bringing a suit against you. The written contract you signed controls all aspects of the employment relationship, including your ability to terminate it. Based on the terms of the contract, you may not be able to fire an IC as easily as you would an employee. Moreover, if the IC feels you’ve violated the terms of the contract, they can sue you for breaching the contract. This leaves you on the hook for attorney’s fees and potential damages.
As your Access lawyer, we’re your trusted advisor when it comes to employment law and worker classification. If you’re trying to decide whether to hire independent contractors versus employees, or you need to ensure your independent contractor agreements offer your company the best protection from liability, as your lawyer, we’re here to help.