- Employees are expensive. Hiring an employee involves paying part of the employee’s Social Security contributions and withholding federal, state and local taxes. This can add expense to a business. Companies need to offer benefits, such as paid time off, health insurance and access to a retirement plan, to attract a talented employee. If you opt for an independent contractor, you are not responsible for the contractor’s benefits, taxes or Social Security payments which means saving tons of money.
- Increase exposure to lawsuits. Employees have a wide array of rights under state and federal laws — and therefore, a variety of legal claims they can potentially bring against their employers for violating those rights. Because ICs are independent businesspeople, they are not protected by many of these laws.
- Companies lose money. Even though most employers pay ICs more per hour than they would pay employees to do the same work, it usually ends up costing employers more to hire employees. When you hire an employee, you will have to pay a number of expenses that you don’t have to pay for ICs, including employer-provided benefits, office space, and equipment. You will also have to make required payments and contributions on behalf of your employees, including:
- your share of the employee’s Social Security and Medicare taxes, which totals 7.65% of the employee’s compensation
- state unemployment compensation insurance, and
- workers’ compensation insurance.
Independent Contractors Reduce Labor Costs And Increase Productivity
- Independent contractors are also easier to train, more productive and provide a lot of flexibility in changing economic times
- Independent Contracting Is A Win-Win. Independent contractors allow workers and firms to share more money between themselves. The government is entitled to much less of the money that flows from firms to independent contractors than employers and employees. Businesses become more profitable, individuals keep more money and everyone increases their privacy
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