FAQS
Should I hire contractors or full-time developers?
- Operations
- Human Resources
As a start-up with limited resources, it may be tempting to try to treat all of your workers as independent contractors. Generally speaking, companies are not required to provide employee benefits, overtime, workers’ compensation insurance, or unemployment benefits to independent contractors. Independent contractors also handle their own Social Security and Medicare taxes by paying self-employment taxes, which reduces the payroll burden for a hiring company.
Employees, on the other hand, are typically entitled to benefits and insurance coverage. Employees are also covered under federal employment laws, including the Fair Labor Standards Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, and Title VII of the Civil Rights Act, all of which require careful compliance by the hiring company.
You might have a “consulting agreement” or an “independent contractor agreement” in place with a worker, but you may be surprised to hear that your worker might be considered an employee despite what you label him or her in the contract.
As an employer, it is your responsibility to properly classify your workers. Therefore, it is important to understand that workers are typically classified into two groups—employees and independent contractors—and how to treat your workers according to their classification.
Since 2010, the U.S. Department of Labor and the IRS have begun cracking down on businesses that misclassify their workers. Many states also have initiated their own task forces focusing on enforcement of the issue. Improper classification of your workers can result in large tax assessments, penalties, and lawsuits against your company. The State of California also recently enacted AB 5, a law making it harder for most employers to classify workers as independent contractors.
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