Independent Contractor vs Employee the Pros & Cons

Ok, the title of this post was to get you to read it, so first off I will say that it is really a matter of pros and cons, because you are not free to choose how you want to pay workers. There are laws that you should follow when classifying workers as either employees (EE) or independent contractors (IC). There are differences in how you handle paying employees and contractors and you can decide if those differences are pros or cons:

Employee Employment Taxes
IC-Business does not withhold any employment tax, the IC is responsible for their own employment tax liabilities
EE-The business must calculate and withhold FICA, Medicare, Income and in some state specific state level taxes.

Employer Employment Taxes
IC-The business does not pay any employment taxes in regards to an IC
EE-The employer is responsible for paying FICA, Medicare, Unemployment and some other state and local employment taxes.

Monthly and/or Quarterly Reporting
IC-There is no governmental reporting required for amounts paid to IC
EE-Businesses must file quarterly and in some cases monthly reports of amounts paid to employees and must transmit employer and employee taxes to various government agencies.

Annual Reporting
IC-If an IC is paid more than $600 for performing services during a calendar year a Form 1099 must be prepared and filed with copies to the IRS and to the IC.
EE-A form W2 must be prepared showing all wages paid and taxes withheld for each EE with copies to the Social Security Administration and the EE.

Common Law Issues
Behavioral-
IC-The business does not control or have the right to control how the worker does the job.
EE-The business can directly control how the worker does the job.
Financial-
IC-The business aspects of the worker’s job are not controlled by the business.
EE-The business directly controls the business aspects of the worker’s job.
Type of Relationship-
IC-There should be written contracts, IC should not be eligible for employee type benefits such as vacation pay or insurance.
EE-You are required to treat employees of the same classification equally in what employee type benefits are offered.