How Do Rights Differ Between an Independent Contractor and an Employee?

All employees hired by your company have a right to state and federal income tax, Medicare and social security withholding. Business owners are also responsible for employee training and certification costs, any applicable unemployment or worker’s compensation payments, and punctual payroll every month.

Hiring independent contractors – or ICs – is much simpler: request their federal EIN, sign a contract for the project required, and submit payment once you receive an invoice. If you pay an IC $600 in one year, you need to fill out form 1099 as well.

Are There Any Advantages to Hiring Employees?

As a sole proprietor, you’re not obligated to provide additional benefits like dental insurance, though incentives may be necessary to secure high-quality individuals. You will need to apply for a tax ID number and get an EIN before hiring employees. Are employees worth the work?

For many businesses, yes. Here’s why:

  • Stability: Employees are there when you need them, for any project. They value job security, and work hard to remain valuable.
  • Wage savings: Hiring employees is usually more cost effective per hour than using independent contractors.
  • Reliable customer service: You can train employees to handle the job like you would do it. This gives you greater control over customer satisfaction.
  • Direction: You have greater control over job quality and methods when using employees.

What Are the Advantages of Working With Independent Contractors?

Since you have no obligation to withhold taxes or pay benefits to contractors, hiring ICs can save time and effort, in addition to other benefits:

  • No training costs
  • Less paperwork
  • High-quality work from licensed professionals
  • Flexibility to hire additional contractors as workload increases
  • Less tasks to manage
  • Easier dismissal process

Are You Liable for Client Damages With Independent Contractors?

Legally, liability is the same for your business whether you assign tasks to employees or ICs. Damage to a client’s property comes back to you as the business owner. This is why taking steps to protect yourself – like forming a C corporation or LLC – is so important. Contact our professional advisors to analyze your needs and file for EIN or any other necessary forms.