Employee Status vs. Independent Contractor

One of the hottest issues in the eyes of the IRS revolves around determining a true independent contractor from a "disguised employee".

Why is this such a tricky subject and why do so many businesses try to use independent contractors instead of employees? One main reason is the tax and money savings differences.

A business that uses an independent contractor instead of an employee saves on payroll taxes. There is no FICA tax, FUTA (Federal unemployment), or State Unemployment Tex. Since these taxes can amount upwards of 15% combined for the business, one can see a decided advantage shaping up.

In addition, no worker's compensation coverage is required for qualified subcontractors. For certain occupations (especially construction, tree work, or other more "dangerous" work) the cost of worker's compensation coverage can exceed 33% of overall payroll!

An independent contractor does not have to be covered under any retirement or fringe benefit plan (such as medical, or insurance) either. The savings here can be equally substantial.

Finally, from an administrative and tax form reporting basis, independent contractors are far easier for businesses to deal with than employees. No quarterly payroll tax returns, no worker's compensation audits, and no yearly W-2 forms are required to be filed - to name a few.

Please contact Topolinski & Associates regarding more information on this topic.