Many companies find it daunting to decide whether to hire a contractor or an employee. What's the difference between a contractor and an employee anyway? What are the benefits and drawbacks of each?
Business Owners should always weigh carefully the pros and cons of hiring an Independent Contractor (IC) versus an Employee depending on the specific requirements and type of project. The length of time, skill requirements and labor law rules will often be the determining factor to make that decision.Payroll costs including payroll taxes as well as vacation, retirement, and insurance benefits are not required to be paid to Independent Contractors. These types of costs can increase your total payroll and benefit expense amounts by twenty to fifty percent or more per year.
Hiring an IC allows you to hire people when you need them the most. You can increase workers when it is very busy and not hire them when you do not need them. Independent Contractors work with a large amount of autonomy. They can decide how the work will be done as long as it satisfies the owner’s requirements. The general rule according to the Internal Revenue Service is “an individual is an Independent Contractor if the payer has the right to control or direct only the result of the work and not what work will be done.”
Higher Levels of Efficiency Quickly
Independent Contractors normally yield profits faster because they are highly skilled in certain areas. They are required to have their own permits and licenses so they do not need to be trained like most employees. In this way, ICs can be very efficient and effective in their work right from the beginning.
Below is a quick summary of the different employee and Independent Contractor attributes:
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