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Are you hiring an Independent Contractor or an Employee in disquise?

March 12, 2011

Many new business owners and some who are not-so-new are attracted to the idea of using independent contractors instead of employees. There are a lot of people in my profession for example who tout themselves as independent contractors.

Advantages of independent contractors There are advantages to using independent contractors such as the employer saves on FICA, Unemployment, and other taxes. They are also not obligated to pay workers compensation and other insurance benefits. They are not subject to FMLA or other employment related legislation.

Disadvantages of independent contractors. The main disadvantage to using independents is that you must keep on top of exactly what qualifies someone as an independent contractor. If you misclassify someone as an independent contractor who isn’t, the penalties can be extremely costly.

Not only that, but there are two different sets of “tests” for independent contractors — one under the Fair Labor Standards Act (FLSA) and a 20-point test administered by the IRS. While the tests differ, they both focus on how much control the employer has over the employee’s work. See also the official site: Department of Labor – FLSA compliance
One safe way to assure that you are not penalized for misuse of an employee as a contractor, is to use someone who has formed a corporation. As an example my company is incorporated and licensed to do business. For other advantages, see my cost comparison table at: A+Virtual cost comparison.

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