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A new survey shows that nearly one in five employers prefer to hire independent contractors, citing rising costs of employee benefits and the Affordable Care Act as key factors.
The SurePayroll Small Business Scorecard survey for August 2013 found that almost 20% of small businesses are more likely to hire a contractor than a full-time employee, reports Inc.com.
Should your business follow suit when faced with its next hiring decision?
Healthcare Costs and Contractors
Obamacare, more formally known as the Affordable Care Act, has mandated that certain eligible businesses offer their full time employees a minimum level of health insurance coverage or face a hefty penalty. Despite the fact that the effective date of this mandate has been pushed back to 2015, many businesses are changing their hiring policies in an attempt to avoid the healthcare mandate.
According to the SurePayroll survey, about 23% of small business owners preferred independent contractors because they wanted to stay below 50 full-time employees, the amount at which an employer must begin to offer minimum health insurance.
Resources like ObamaCareSurvival.com have been popping up in the last two years, promising entrepreneurs that independent contractors are the solution to avoiding the impending health care mandate, but it might not be so simple.
IRS Scrutiny of Independent Contractors
While independent contractors may in practice do much of the same work as a full-time employee without any of the benefits, the IRS has been cracking down on employers who misclassify their employees. Independent contractors are defined as self-employed by the IRS and as such pay self-employment taxes that might otherwise be borne by their employers.
The IRS is very keen on collecting taxes when they are owed, and if your business hires "independent contractors" but continues to treat them like full-time employees (i.e. an employer-employee relationship), the IRS' steely gaze will likely turn on you.
By making the proper considerations and not just slapping "independent contractor" on an employee's title, your business can avoid any of these negative legal and tax consequences.
Tax and healthcare implications aside, small business owners should evaluate whether independent contractors are a good long-term solution, for compliance with the law, employee morale, and company loyalty. After a few years, employers may find that a substantial part of their workforce is not at all interested in remaining on the payroll and growing the business.
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