March 5th, 2011

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Employer Benefits in Hiring Independent Contractors

An independent contractor is a person who owns a business but has an association with another different company or employer. Independent contractors (ICs) may also be called consultants, freelancers, or self-employed. These people are associated with another, possibly relevant, businesses because they do a particular work for them that require their expertise. It’s best to ask a knowledgeable Los Angeles Employment Lawyer when pondering whether to start hiring an independent contractor or not.

Aside from performing work for them, there are also other reasons why some businesses opt to hire an IC instead of making their own employees do the work. But there may be disadvantages to hiring them as well, that’s why employers need to contemplate on their decision very well before hiring ICs. Here are some reasons why ICs are beneficial to businesses:

  • Financial benefits – Of course, the higher chances of saving money tops this list. ICs get paid more for an hour compared to employees, but employees had to be provided with benefits, office space, equipment, and other necessities and contributions that can increase payroll costs by 20 to 30 per cent or more, like:
    • Social Security and Medicare taxes that can total to 7.56 per cent of the employee’s compensation
    • State unemployment compensation insurance
    • Workers’ compensation insurance
  • Staffing flexibility and greater efficiency – With ICs on board, employers have greater leeway in hiring and letting go of employees. This is can be an advantage for employers with irregular workloads. ICs hired for a specific task or project are let go once it’s done. This minimizes the need to experience the trauma or difficulty of firing employees. Tasks can also be completed faster since ICs bring specialized expertise for it, and usually perform with efficiency to produce something immediately.
  • Security from lawsuits – Due to various employee rights under both state and federal laws, a lot of legal claims against the employer may arise. ICs are independent businesspeople; therefore they are not protected by many of these laws, which include:
    • Right to earn minimum wage and overtime compensation
    • Protection from discrimination based on race, national origin, color, religion, gender, etc.
    • The right to form a union
    • The right to leaves due to sickness or other qualified reasons

However, employers should make sure that they rightfully classify a worker as their employee and not as independent contractor, and vice versa. Employees should seek the help of a Los Angeles Employment Attorney if there is reason to believe that their employers misclassified them.