Should your business use an independent contractor or hire a full-time employee?

Following President Obama’s much hyped jobs speech, small business owners have been discussing the direct ramifications for if his proposals were enacted by Congress.

My Technically Media colleagues and I were specifically interested in these details, as provided by the New York Times:

“The centerpiece of the American Jobs Act is an extension and expansion of the cut in payroll taxes, worth $240 billion, under which the tax paid by employees would be cut in half through 2012. Smaller businesses would also get a cut in their payroll taxes, as well as a tax holiday for hiring new employees.” Also: $4k to any business that hires an employee that has been looking for a job for six months.

Beyond the fact that those proposals aren’t actually in place yet, I wanted to share the basic, common reasons for why independent contractors and freelancers are still the way of the world, particularly in publishing.

*Note, I am far from a financial planner. These are just commonplace words of wisdom and direct advice from professionals.

Benefits of independent contractors:

• Save 12-15 percent of expected money paid to the individual, in employer-matched payroll taxes, worker’s compensation and related costs
• Be absolved from worker liability and many workplace expectations
• More easily trial individuals and work on short-term projects with a clear end
• Simply collect a W9 for all individuals and then file a 1099 for those paid more than $600.
• Avoid expectations for health insurance, retirement plans and other additional benefits not already providing early in your business.

Benefits of full-time employees:

• Encourage work from a central office, to foster collaboration and connectivity
• Encourage similar working hours to foster better communication.
• Allow employees to use tools and resources provided by your company (computers, equipment, paid tools)
• Pay them through payroll, instead of paying a variable, monthly invoice
• Dictate all or the majority of the assignments and work projects for the individual

Important Reading:

• Independent Contractor (Self-Employed) or Employee? [IRS]
• Is This An Employee or Independent Contractor? 
• Independent Contractor definition [Wikipedia]
• W2 for full-time employees, 1099 for independent contractors
• W9 and 1099 forms for independent contractors
• 1099 vs W2 at around $60k/yr: How much actual difference?  [ars technica forum]