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The Benefits and Costs of Hiring Independent Contractors

Like any important strategic business decision, whether to use independent contractors comes with its benefits and its costs. And it's up to you to decide what works best for your company.

And here are a few things to keep in mind if you have to make that choice:

BENEFIT: Flexibility

Not every business has a steady stream of year-round income. (Think Christmas tree sales or landscaping crews.) Hiring contractors for short-term projects allows companies to scale up and down as needed. This can even be helpful on a day-to-day or week-to-week basis as demands for goods and services fluctuate.

Also, independent contractors are not subject to the same wage and hour laws as employees so they may be able to staff night and weekend projects more easily.

BENEFIT: Savings

With the Obamacare mandate that businesses provide a minimum level of healthcare coverage for full-time employees, many small businesses are looking for ways to defray or avoid the additional cost altogether. As long as a business has fewer than 50 full-time employees, it is not subject to the Affordable Care Act. So a business may be able to save money by hiring contractors.

But, employers also should be careful -- as you'll see below, just calling someone a contractor doesn't necessary make them one.

COST: Scrutiny

It's not surprising that as more employers have sought the benefits of using independent contractors, the Internal Revenue Service has increased its investigations of contractor use and abuse. And if you're using someone like an employee and compensating them like a contractor, you could be in trouble.

The key to avoiding legal headaches later is having the right independent contractor agreement ahead of time. A good contractor agreement will clarify the scope of the work involved as well as the payment and compensation parameters. It is not what you call an employee that matters, it is how they (and you) act.

Considering the IRS crackdown on contractor employment and compensation, you may want to consult with an experienced employment law attorney to make sure you have the proper agreement in place and your business is complying with state and federal employment laws.

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