Hiring Employees vs. Independent Contractors

For companies with a small number of employees, are there advantages to hiring independent contractors vs. actual employees?

With independent contractors you avoid the hassles of FICA, unemployment and worker’s compensation. You can exclude contractors from employee benefit plans and generally avoid legal and regulatory oversight.

So the question is can you hire contractors? They are easier and the IRS knows this. The IRS has a 20 factor test to determine employment. If the IRS determines your contractors are employees you will be liable for FICA, FUTA and interest and penalties. There are a number of steps you should take to properly document Independent Contractor status including a contract.