With the amount of commitment required for employers to bring on full-time workers, almost one in five small business owners are opting instead to hire independent contractors.
That’s according to a recent survey from Inc.com, which sought to quantify the changing tide of how many small business owners are choosing to operate.
Our Boston small business lawyers know that there are a number of benefits companies can realize from both contractors and full-time employees. Most tend to see independent contractors as significantly less hassle. However, there are legal considerations that companies need to make in order to avoid contract disputes and litigation.
Investing in the services of an experienced business attorney prior to hiring a contractor can help you avoid some of the most common and serious problems that can arise.
According to Inc.com, those who were more inclined to hire independent contractors said it tends to be easier to simply pay someone for a single, specified task, rather than bring on someone full-time. Services that are more frequently being contracted out are those such as information technology, marketing and administrative work.
By hiring an independent contractor, employers don’t have to cover payroll taxes or benefits – which can be very costly. At the same time, many contractors have specialized skills.
Additionally, a lot of companies are talking about the additional costs associated with the looming Affordable Care Act. Companies can be exempt from the national health care act if they can manage to stay below 50 full-time workers. This was a reason cited by nearly a quarter of all companies using independent contractors. Because contractors aren’t technically employees, companies are able to circumvent those requirements.
Still, taking this route can mean the need to hire several different contractors, as opposed to a single full-time employee who might be able to handle a range of tasks. For some employers, it might make more financial sense to hire a single worker, rather than have multiple contracts with a number of different individuals – not all of whom are going to reliable.
The other problem with contractors is the question of whether they are in fact contractors, or whether they might be employees. This is an issue of classification, which is of increasing importance in the employment world.
Companies that aren’t careful could find themselves among the number of firms that undergo scrutiny from the U.S. Department of Labor and Internal Revenue Service. Those regulators are currently investigating scores of businesses for improper classification of employees as contractors. The amount of potential fines and liabilities could range from a few thousand dollars to several million, depending on the extent of the violations.
The distinction of who is an employer and who is a contractor often comes down to the level of control an employer exerts. In general, someone who has to work a set number of hours and perform the work in a particular sort of way tends to look a lot like an employee, from a legal perspective. On the other hand, a person who has freedom to decide when and how to work and is even at liberty to subcontract portions of that work to other individuals will probably be considered a contractor.
It’s important that small- and medium-sized businesses hoping to cash in on the benefits of independent contractors make sure they are on legally solid footing.
The Brown Law Firm, LLC, has offices in Belmont and Boston. For a free and confidential consultation, call 617-489-0817 or contact us online.
Employees misclassified as contractors can cost firms a bundle, March 22, 2013, By Annie Baxter, MPR News
20% of Small Businesses Now Prefer Independent Contractors, Sept. 3, 2012, By Michale Alter, Inc.com
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