The High-touch Legal Services® Blog…for Startups!

© 2009-2019 Dana H. Shultz, Attorney at Law

Avoiding the Independent Contractor Trap

Photo of a mouse trap with money in it, symbolizing the independent contractor trapSmall companies usually need to conserve cash, so they often turn to independent contractors rather than employees. This makes perfect sense – unless the company falls into what I call the independent contractor trap.

If there is not enough work to justify a regular employee, the company can use an independent contractor when needed. That way the company avoids making unemployment and social security contributions. Also, it does not pay benefits such as health and life insurance, retirement plan contributions and personal time off.

There can be problems, however. If the individual really is doing the work of an employee – is misclassified – the Internal Revenue Service or, in California, the Employment Development Department might reclassify the individual as an employee, erasing the presumed financial benefits.

(more…)