Q.
What
are the advantages and disadvantages of being an
independent contractor versus an employee?
A.
The
best way to answer this question is to analyze
the differences between an employee and an
independent contractor.
1.
Employers
have the general right to dismiss employees for
cause, whereas independent contractors are
controlled by contractual agreement whether it
be written or implied.
2.
Payment to
employees is generally made periodically or by
the hour. Payment to independent contractors is
made by the quote or by the job.
3.
An employee
is assumed to have a more permanent relationship
than an independent contractor who is assumed to
have a limited relationship.
4.
Employees
usually have all tools and equipment paid for
and all overhead paid. Employees may not hire
other employees to assist them unless previously
agreed. Independent contractors supply their
own equipment and tools unless otherwise agreed
upon and are given opportunity for profit or
loss. They have the right to employ others to
assist them. Court cases have determined
independent contractors supply their own
employees while employers control the way work
is performed, provide all tools, and pay all
overhead expenses.
5.
Employers
may restrict outside employment of employees,
but no such restrictions can be placed on
independent contractors because their services
are offered to the general public.
Substantial liabilities for FICA taxes and
withholding can build up unless employers have a
reasonable basis for treating an individual as
an independent contractor.
Business owners should investigate turning over
certain operations to independent contractors
who may be able to perform services at an
overall lower net cost.
Independent contractors always have the
following characteristics:
1.
No salary;
2.
No payroll
taxes;
3.
Less
supervision;
4.
Easier
termination (by agreement).