Independent contractors are self-employed individuals who hire out their labor to clients.  It is often advantageous for small business owners to hire independent contractors because you can save 30 percent or more by not having to pay the employer’s portion of the Social Security tax, unemployment taxes, workers’ compensation insurance premiums, or employee benefits.

However, you must make sure not to misclassify an employee as an independent contractor.  If you do misclassify, you might be responsible for paying uncollected income taxes, Social Security taxes, unemployment taxes, and penalties for not having adequate workers’ compensation coverage.

There are many different ways to determine whether or not an individual is an employee or an independent contractor.  For more information, you can contact the IRS, the U.S. Department of Labor, state taxing authorities, and state unemployment and workers’ compensation agencies.  The most popular test is the IRS’s 20 factor test.

A comprehensive benefit plan often includes such things as health insurance, disability insurance, life insurance, retirement plan, flexible compensation, bonuses, and reimbursement of employee educational expenses.  If a company does not have an adequate comprehensive benefits program, they may lose out on the best personnel.  A comprehensive benefits plan will also increase morale among your employees.