There are many benefits for employers when they hire independent contractors. In this video, review financial, strategic, and other benefits of the relationship.
Fact is, thousands of companies and millions of workers are benefiting from the ever growing gig economy. There are four main benefits to hiring a worker as an independent contractor. First is flexibility. Most companies hire independent contractors because of the flexibility they can provide. They may come in as a part-time CFO. They can be hired on a project basis, they can bring in unique expertise. You can hire them when you need them and you could hire them today.
They can work from anywhere and you don't have to tell them how to do their jobs, only the results you want. Second, there are no payroll deductions. One of the primary benefits employers look at is the avoidance of various payroll deductions, such as Social Security, Medicare, unemployment, state withholding, state disability taxes, workers compensation, which, by the way, is a big factor, especially in construction, in similar high injury occupations, and more.
Third, there are no employee benefits. Independent contractor status eliminates the cost of overtime, accident, life, and health insurance, pensions, profit sharing benefits, and bonuses. It also eliminates the cost of managing these payroll and benefit functions. And, last, the additional cost savings includes the reduced legal exposure to other employment laws. Properly classified independent contractors can't sue for sexual harassment, overtime violations, or take FMLA leave, or file for worker's comp.
They can't form unions or file discrimination claims. In most instances, your exposure is limited to breach of contract arguments. Using independent contractors instead of employees can help a company stay below the threshold for disability accommodations, which is 15 employees, and FMLA leave, which applies where there are 50 employees. There are also different benefit law requirements, depending on employer size.
These cost savings can be significant. For instance, a $50,000 employee costs over $4,000 in Social Security, Medicare, and unemployment withholdings alone. The overtime rate would be approximately $38 per hour. Standard health benefits would cost $500 per month or more. These payments can easily increase your payroll costs by 20 to 30% or more. When totaled, the annual difference between the classification of that worker could be $10,000 or more per year.
Now, that savings does not include the benefit from the reduced compliance exposure, which is very difficult to quantify. The bottom line is there is great benefit in hiring properly classified, highly qualified independent contractors.
DISCLAIMER: This course addresses US law concepts that may not apply in all countries. LinkedIn (including Lynda.com) and the instructor are not giving legal advice. Neither Linkedin (including Lynda.com) nor the instructor represent you. The information conveyed through this course is similar to a college or law school course; it is not intended to give legal advice, but instead to communicate information to help viewers understand the basics of the topic presented. The views and legal interpretations presented in this course do not necessarily represent the views of LinkedIn or Lynda.com.
- Legal requirements for classifying independent contractors
- Financial and strategic benefits of contract employees
- Downsides of misclassification
- What triggers complaints and investigations?
- Licensing statutes, permit requirements, and anti-discrimination statutes
- Preventing misclassification claims
- Considering an SS-8 ruling
- Amnesty programs