Sure it is a lot of work having an employee, but hiring all of your workers as “independent contractors” can get you into some hot water. An “independent contractor” is happy with his checks until an issue arises. For example, if they get hurt they expect to be able to file a claim, but they’re not covered because you aren’t paying for them. What if you have to lay them off work, well then off they go to the unemployment office and again get nothing because you aren’t paying. They also don’t get state disability insurance or paid family leave benefits. They are treated as if they are an independent contractor even though they may not truly be.
Another huge issue is taxes. You as the employer are not paying their taxes and they may not be filing their quarterly payments and now the Franchise Tax Board or Internal Revenue Service wants their money. When they try to go after the “independent contractor”, they find they have no money, no assets or possibly can’t even been found. So they come after you since you are the employer who has money and failed to make the required tax withholdings. Not to mention the misclassified employee could possibly be seeing red when they learn that as an independent contractor they owe a lot of taxes. So they may turn you in for misclassifying them.
So—are you hiring employees as “independent contractors”? There are many rules when it comes to independent contractors, but the simplest rule is that if the work the person is doing is a regular part of your business, then they are more than likely an employee. An independent contractor makes their own hours, has their own supplies and does not work regularly for any employer. If you are misclassifying employees the fines and penalties can be huge.
