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May 12, 2010
The Pros and Cons of Using Independent Contractors

In a BLR webinar titled "Reducing Overtime Costs: What You Legally Can—and Can't—Do to Keep Workers at Their Straight-Time Rates," Laura P. Worsinger, Esq., explained the advantages and disadvantages of using independent contractors.

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Engaging workers as independent contractors has several distinct advantages. Independent contractors:

  • Do not have to be paid minimum wage or overtime;
  • Need not be covered by workers' compensation;
  • Do not have employment taxes deducted from their earnings by an employer;
  • Have no rights to employee benefits; and
  • Are not employees subject to the Immigration Reform and Control Act (IRCA) of 1986.


Worsinger cited two potential problems that could result from hiring independent contractors:

  • An independent contractor can sue the company for personal injury sustained on its premises. This litigation can be far more costly than a workers' compensation claim.
  • Misclassifying a worker as an independent contractor can be costly.

If individuals classified as independent contractors are found to be employees, the company will be assessed for amounts due for:

  • Unemployment insurance contributions, disability insurance contributions, and state income tax withholding amounts and penalties;
  • Payment of employment taxes (including 100 percent of the employer's Social Security contributions), federal income tax not withheld, and unemployment tax equal to 6.2% of the compensation paid to the worker (The company is not entitled to collect these amounts from the alleged independent contractor.);
  • Liability for unpaid wages for potential overtime pay;
  • Penalties of $50 to $100 per employee per pay period for failure to pay all wages due every pay period, and up to 25 percent of the wages not paid to each employee for each pay period; and
  • Retroactive entitlement to benefits offered to employees, such as health insurance, vacations, and retirement plans.

Laura P. Worsinger, Esq. is Of Counsel with the Los Angeles office of Dykema Gossett PLLC. She has broad counseling and litigation experience and specializes in the defense of employers in individual and class actions involving wage and hour violations, misclassification, discrimination, wrongful termination, and other employment-related proceedings. She can be contacted at

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