When you hire someone new, they will either be an employee or an independent contractor. This status will define the legal obligations that you will have to satisfy with the government. The worker’s status does not only depend on what the employer and the employee agree on. That status will be defined by a series of factors related to their work schedule, environment, the tools they use for their work and other factors.
There are many factors used to define the difference between an independent contractor and an employee. The more regular their shift, the location of where they work for you, and the type of work they do, the more they are like an employee. But, there are other factors involved as well and sometimes the line between an employee and an independent contractor is not very clear.
The point is that independent contractor status tends to be more beneficial for your business and even if the status is in theory defined by objective facts within the work place, you might have an interest to orient your worker’s habits to meet the requirements for independent contractor status. Indeed, if a worker is an independent contractor, it will make you save money and reduce your payroll by at least 20%, as you will not have to pay for social security, state unemployment compensation insurance or worker’s compensation insurance. Working with independent contractors will also permit you to gain flexibility, hiring workers for a special task or project or just to increase your staff when you are facing a spontaneous increase of demand. Also, depending on the jurisdiction, independent contractors do not benefit from employment laws such as minimum wage, which will decrease the likelihood that you are sued by your staff for not meeting certain governmental requirements.
As this status works in some ways to your advantage, be prepared for the possibility of facing government audits. Indeed, as you have fewer legal obligations with an independent contractor than with an employee and as it also costs less to your company, federal agencies will tend to run audits with the goal of trying to classify as many workers as possible as employees. If you want to avoid audits, fines or taxes, make sure that your independent contractor is not in fact a hidden employee. To be sure that the classification you chose is respected, double-check that you are not treating your independent contractors the same way you treat your employees. For that matter, there are certain work habits that you should avoid like overly supervising their work; giving them an employee handbook, setting specific working hours, or giving them business cards with the name of your company on it, etc.
Last advice: make sure that you put your independent contractor agreement in writing and that you incorporate all of the essential terms.