This is a difficult subject for many small business owners. A mistake I’ve seen companies make in my consulting business is to hire two people for very similar jobs, one as an independent contractor and one as an employee. This leads to trouble down the line as mentioned in the post, paying the IRS not only the taxes the company should have paid but also the portion that should have been paid by the employee.

Always consult with an employment attorney or accountant on this subject when starting out!

Rahul
http://TechZed.com

That said: one huge reason most people become entrepreneurs is because they believe themselves smarter than . . . well, certainly smarter than the government! And if you are careful you can craft your policies such that your contractors STAY contractors (this is one of the things we do all the time for our clients, by the way).

So the whole “who needs the hassle of an employee?” question comes back up as what’s important, and the answer is that you do if you need people available to you in a certain way at a certain time. Other than that . . . you don’t need them.

Jeff Yablon
President & CEO
Virtual VIP Business Coaching, Computer Care, and Virtual Assistant Services

I think that there are many companies who use “contractors” and don’t understand this information (even though it’s available on the IRS website).

I always get a little concerned if a company expects a contractor to work only for them and tries to dictate how and when that work is done.

There can also be a problem if employees and contractors are doing exactly the same work and fall under the same restrictions. I once worked for a company that was sued for treating employees and contractors alike.

That being said, I have over dozen different clients and all of them allow me to work independently. If think those companies are pretty safe in saying that I am a contractor.