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Advantages of Using Independent Contractors

Managing Personnel and Payroll Costs

An important consideration in any type of business is managing personnel and payroll costs. This has always been true of nearly any successful business regardless of the type of industry they are involved in. When financial times become leaner and it becomes more difficult for businesses to achieve financial success, it is even more imperative to control costs and reign in spending.


One of the most expensive elements of any business is the costs associated with hiring and keeping employees. Maintaining just one employee has costs such as health insurance, sick days, vacation time, overtime, and various bonus structures that are in addition to the employee’s base salary.

When to Use an Independent Contractor

While good employees are more than worth the costs associated with their employment, sometimes there are other ways to achieve the same goals without all of the associated costs. In lean fiscal times, creative businesses find ways to reduce operating expenses without impeding the prospect for continued profit generation. One way to do this, as explained clearly by the US Small Business Administration, is to utilize independent contractors whenever possible.

How Independent Contractors Can Help

An independent contractor is an individual who specializes in a specific field within an industry. They are usually professionals who have worked for different companies or in different jobs at various levels in the specific industry that they offer their services in. The most successful independent contractors are the ones that were at or near the top in their chosen field, and they were good enough at what they did to be able to go it alone and work for themselves.

These types of independent contractors can be a great asset to a company in need of covering specific business requirements without having to hire in-house employees to accomplish the task.

Financial Benefits

There are several important benefits to hiring an independent contractor over an in-house employee. Independent contractors work for themselves and are hired out as a contract worker, which means they are responsible for paying their own payroll taxes and insurance benefits. This alone is a huge benefit to any company seeking to reduce operating costs, but when additional benefits such as reduced sick days and no loss of productivity to vacation time are factored in, the use of independent contractors becomes a smart business solution in many situations.

An independent contractor can be very helpful in filling a specialized task or element of the company's business operation that normally would be difficult to find a talented employee to accomplish. The important consideration in this situation is to realize that many independent contractors hire themselves out to different companies at the same time in order to maximize their profit.

Hiring an Independent Contractor

While reducing employment costs can be desirable in many situations, it is important for a business not to rush into the hiring of independent contractors merely to take advantage of reduced expenses.

IRS

There are very specific laws set forth by the IRS as well as all of the states in regard to classification of employees and independent contractors. Businesses that misclassify an employee as an independent contractor can face stiff penalties from the IRS and state agencies.

As explained here in an article in the Small Business Chronicle, it is important for a company to consult with a legal advisor prior to hiring an independent contractor. Generally, independent contractors control their own schedule and the hours that they work. They are also responsible for their own performance and not subject to disciplinary procedures of the company. If the company is not happy with the contractor’s performance, however, they can simply end the contract.

The Value of a Non-Disclosure Agreement

If the contractor has access to sensitive information, it is vital for the company to have them sign a non-disclosure agreement as a condition of the contract. It is important for a company to protect itself from any type of accidental or intentional exposure of privileged information through an independent contractor who constantly moves from one company to another sometimes on a daily basis.


A non-disclosure agreement helps to ensure that this information does not fall into the hands of a rival company.

How LegalNature Can Help You with Your Legal Form Needs

LegalNature can help you with all of your personal legal form needs. Let us help you get started today. Click here to create your independent contractor non-disclosure agreement now.

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