Benefits to hiring a contractor vs. employee

Why do so many businesses try to use independent contractors instead of employees? One main reason is the tax and money savings differences.

A business that uses an independent contractor instead of an employee saves on payroll taxes, insurance, medical/retirement plans & other costs.

More specifically:

1. FICA tax ( employer 1.45% medicare + 6.2% social security = 7.65% total )
   
2. FUTA(Federal Unemployment) - typically paid on first $7000 of wages - percentage varies
   
3. State Unemployment Tax - typically paid on first $9500 of wages - percentage varies
4. Worker's compensation coverage. For certain occupations (especially construction, tree work, or other more 'dangerous' work) the cost of worker's compensation coverage often exceeds 33% of overall payroll!
5. Retirement or fringe benefit plans (such as medical insurance) either.
   

There are also substantial savings on the burden of administrative tax reporting basis.
Independent contractors are far easier for businesses to deal with than employees.

1. No quarterly payroll tax returns, 941's 1120's, 1017's, 940's
   
2. no worker's compensation audits, and
   
3. no yearly W-2 forms are required to be filed--to name a few.
   

So one can see where the inducement lies in using independent contractors instead of employees.