If you have an employee, chances are you’re pretty clear on how much you pay them in salary. You might have even figured in the costs of payroll taxes (depending on what their job function is – this could be an extra 10% – 20%) and the costs of benefits such as health care and other fringes.
But have you ever considered the hidden costs of employees?
Let’s say you have a business that requires someone to work on the computer during the day. If you have an employee, you are paying them for their time which means they may or may not be productive for you. Only time will tell.
You also have to furnish them a place to sit. You have to have enough space rented for them for that. Let’s give them an office and figure 120 square feet. And we’ll just use a gross lease amount of $1.00/square feet/month. That means the space costs $120/month. Plus you have to give them a phone and phone line. Figure the phone line is another $30/month. And you have to give them supplies, figure $20/month. And there is a pro-rata portion on the lunch room and reception area. Another $30/month. And a portion of the computer tech who keeps their computer going and the receptionist. Just based on my historical numbers, I’d put that at about $500 per month. So far, you have a total of $700 per month in costs you might not have realized. Plus, you had to furnish them a computer, phone, desk and chair. That’s got to be at least $2,000.
Add it all up and you’re looking at $10,400 in the first year of hidden costs.
That’s just one of the many reasons that I would rather work with Independent Contractors than employees. You don’t need to pay for benefits, payroll taxes and all the hidden costs associated with employees if you instead have Independent Contractors.
Remember, though, the IRS would love to prove that they are really employees. Make sure you can Win the Independent Contractor Argument!