For employers, there are many very significant benefits to having independent contractors versus employees. First, the most obvious benefit, at least to the general public, is that independent contractors are paid on a 1099 basis, as opposed to a W-2 basis. This means that companies do not have to pay withholding tax, make Social Security contributions or pay into Medicare. A second crucial cost-saving benefit of utilizing independent contractors is that they do not receive the same perks as regular employees, such as vacation and sick pay, paid vacations, participation in 401k programs, etc.
Further, independent contractors are not entitled to protection under overtime laws such as the Fair Labor Standards Act, and companies cannot be sued by independent contractors under employment laws prohibiting discrimination, sexual harassment, retaliation, wrongful termination, etc. Finally, at least with regard to the major benefits of having independent contractors versus employees, independent contractors can be bound by all necessary employer policies, such as work rules, non-compete agreements, etc.
Contact MM&D today for legal advice on this subject.
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