Lately, the use of independent contractors has been on the rise. In a BLR webinar "Independent Contractor or Employee? Avoid the Misclassification Crackdown," Attorney Kara E. Shea noted some reasons for this trend over the last few years, in a recent BLR.

• New technology and a changing workplace allow it: "things that used to tie us to a particular worksite or location are no longer there; we have mobility. We can work off-site, work from home, work anywhere."
• Employees want flexibility and work/life balance: "they want to come and go and make their own hours and schedules, so that they can fit that in with their lifestyle choices."
• High cost of employee benefits makes this arrangement attractive to employers because independent contractors don’t fall under this umbrella.
• Explosion of employment regulation and litigation is burdensome, almost none of which applies to an independent workforce (another attraction for employers).
• Economic uncertainty can be problematic, especially if you have to let employees go when times are slow, just to rehire when business picks up. Independent contractors can make this smoother for employers since they are only hired to provide a service and not indefinitely.

What’s Best for Your Business: Independent Contractor or Employee?

With this trend, perhaps you have or are considering independent contractors. There are some benefits of hiring independent contractors, and cost savings is often a big one. You can save payroll costs such as:

• Federal payroll tax
• Unemployment insurance premiums
• Workers’ compensation premiums
• Employee benefits (vacation, sick leave, retirement, disability, health insurance)
• Office space and equipment
• No additional reimbursement for costs
• No overtime

Additionally, you will have reduced exposure to some types of lawsuits such as alleged job discrimination and wrongful termination. You will be able to have flexibility for the people providing work for you with less cost and risk.

When considering whether to utilize independent contractors or employees, however, it’s important to consider that there are also risks of hiring independent contractors:

• You still face exposure for on-the-job injuries.
• There can be intellectual property complications if this is not spelled out up front. Business will not automatically own the copyright in most work created by an independent contractor.
• Finally, there are consequences of misclassification. If you intend to use independent contractors but treat them as employees, the IRS will require you to pay all back taxes owed, with interest, plus a penalty. The risk of this situation is increasing due to audits by federal and state agencies, and the increasing prevalence of private and class litigation.

Knowing this, be mindful when you decide between independent contractors or employees.

In a related article, Shea discusses the differences between employees and independent contractors.

For more information on classifying workers as independent contractors or employees, order the webinar recording. To register for a future webinar, visit http://catalog.blr.com/audio.

Attorney Kara E. Shea, a member at Miller & Martin PLLC, provides advice on issues and compliance to national, regional, and local employers of all sizes, ranging from Fortune 500 companies to small businesses in a variety of industries. She also represents employers on a variety of employment issues such as wage and hour cases, including class actions.