Being an independent contractor (IC) or self-employed is the other American dream in the minds of most people. Some of the advantages of self-employment are:
Being able to set your own hours
Having a say in how you do your business
Not having a glass ceiling to deal with: you are your own boss after all!
No office politics or water cooler gossip to contend with
Self-employment tax benefits
Being able to work at home (at least for many contractors)
By definition, an independent contractor is a person (or a business) who provides services to another as a non-employee for an agreed upon fee, be it hourly or per project. The hiring company or individual does not direct how or what hours the independent contractor gets the job done as long as they get the desired outcome on time.
Many companies and individuals have, in recent years, become enamored with the idea of hiring ICs because there are some advantages which include, but are not limited to:
Not having to pay Social Security and Medicare taxes
Reduced overhead cost since independent contractors provide and maintain their own tools and office supplies
Not needing to provide employee benefits
Saving money by hiring a contractor as needed, versus keeping an employee on payroll whether or not your business needs fluctuate
Reduced risk of lawsuits by employees for such issues as sexual harassment, discrimination, and wrongful termination
Unfortunately in the real world, hiring and independent contractor, or being one, is not as simple as the definition above would lead one to believe. There is much confusion when it comes to defining the relationship between the hiring company or individual, and the independent contractor. In other words, someone is not necessarily legally an independent contractor just because they say they are, or you made them sign a contract stating that they are.
As an employer, it’s critical that you consult with a lawyer who understands business law and can advise you properly. If you do not categorize workers properly, you run into the problem of having tax issues and other challenges.
Speak to a skilled attorney at Posternock Apell, PC for clarification about consultants vs. employees and advice on managing your workforce.
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