Advantages / Disadvantages of Being An Independent Contractor

independent contractor in CaliforniaIn recent years, it has become increasingly popular for businesses to use the services of independent contractors for both short and long-term projects rather than to hire new career employees. Business can retain the services of independent contractors directly, or through a temporary employment agency.

The potential advantages of suing independent contractors include:
1. Cost savings from mandated contributions. The employer does not have to pay the usual employer contributions – state unemployment tax, social security tax or federal unemployment tax.
2. Cost savings from discretionary fringe benefits. The employer does not have to provide the independent contractor the employee benefits such as medical or life insurance, vacation leave, sick time and pregnancy leave, or retirement plan participation.
3. Minimizing potential liability in workplace. Businesses are generally not liable for injuries incurred by independent contractors of by employees of independent contractors. 4. The employer can choose whether to provide workers compensation insurance. The risk of discrimination claims by independent contractors is also significantly lower because most anti-discrimination statutes protect employees only.
5. The employer may use an independent contractor for individual projects without incurring liability for unlawful employment termination suits of unemployment claims. Employer usually also save administrative time and costs by paying independent contractors on a gross basis and not setting up a payroll system.

The potential disadvantages in using independent contractors:
1. The employer has less control over how the contractor performs the services.
2. The employer cannot unilaterally terminate the working relationship with the independent contractor without risking liability for breach of contract. It might be easier to terminate an employee, especially if he/she is an at-will worker.
3. The employer may have no ongoing relationship with the contractor.
4. The employer bears the risk of misclassification. It is very important to recognize that whether the worker is an employee or an independent contractor depends on the specific circumstances of his employment and not on how he is formally classified. Thus, calling someone an “independent contractor” doesn’t create the contractor status. The key element to determining the worker’s status is the degree of control that the employer exercises over the worker’s work, schedule, etc. Misclassification of a workers may lead to serious penalties and liability for civil damages if the workers is not provided with certain benefits because he was erroneously classified as an independent contractor.