Can I avoid payroll tax issues by hiring independent contractors?
The advantages of independent contractors include:
- Your business can save money, because you won’t have to pay for the independent contractor’s federal payroll taxes, social security, unemployment insurance, workers’ comp health insurance, vacations and sick leave.
- You also won’t have to rent space and pay for office furniture for the independent contractor
- An independent contractor can’t sue you for discrimination or being fired
- You don’t have to train an independent contractor, and they can usually start productive work right away
The disadvantages of independent contractors include:
- Independent contractors can sue you if they’re injured on the job due to your negligence, because they aren’t covered by workers’ comp
- If you later find out that someone you thought was an independent contractor is really considered an employee, you may have to pay back taxes and penalties (up to 35 percent
- Employee Versus Independent Contractor
- Different governmental agencies use different tests for deciding when someone is an independent contractor versus an employee.