Maintaining an employee workforce comes with multiple burdens for employers. These burdens include: withholding from an employee’s compensation federal income taxes and state and local taxes, as well as taxes under the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA). In addition, employers must make the employer’s contribution for Social Security for its employees, provide workers’ compensation for its employees and contribute to the state unemployment fund. Employers can avoid the burden of all of these taxes by employing independent contractors as opposed to employees. Moreover, an employer may avoid the requirements of other laws such as the National Labors Relations Act (NLRA), the Fair Labor Standards Act (FLSA) and various employment discrimination laws, which typically do not apply to independent contractors.
Employers, however, should proceed very cautiously when employing independent contractors, as this classification has very stringent requirements. The penalties for misclassifying employees as independent contractors can be very costly. Among other things, the employer may be required to remit all unpaid taxes to the Internal Revenue Service (IRS) and other state and local agencies, along with penalties and interest. The costs for these unexpected expenses can be devastating.
The law generally favors...
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