Will changing employees into independent contractors save on payroll taxes?

I just wrote a blog post about this question – Will changing employees into independent contractors save on payroll taxes? And also debunking some ideas about payroll. This was one of the topics I discuss. Read the entire blog post, but here’s my answer to that question.

  • The savings in using independent contractor are mostly illusionary. If you are not paying the Social Security and Medicare taxes, independent contractors have to pay them.
  • Independent contractors also have to handle their benefits on what you pay them. If you think you are saving money, you are in reality cheating the contractor.
  • You should be paying them all of the costs that you are making them pay for. There is no free lunch.

You are also forgoing the upside of hiring employees.

  • You don’t get to decide whether a worker is an employee or an independent contractor.
  • There are 20 common law rules for determining whether a worker is an independent contractor or not. See them here.
  • A preponderance of those 20 rules determines the outcome. The common law rules are the law.

In the end, if there is a dispute, the court will decide.

Learn more about W2s versus 1099s here.