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What Will It Cost Me to Hire an Independent Contractor as an Employee?


Q: Currently I use independent contractors in my business. What is the additional cost of making them my employees?

A: Your costs and responsibilities toward employees are much greater than toward independent contractors. You must pay the employer portion of FICA (Social Security and Medicare taxes), unemployment insurance, and workers' compensation insurance. You must withhold the employee share of FICA plus federal (and state) income taxes, include employees in any retirement or other benefit plans you have or set up, and adhere to all federal and state laws governing an employer's treatment of employees (such as minimum wage and overtime rules). For federal tax obligations for employees, you should look at IRS Publication 15, Circular E, which you can download from the IRS Web site. Also check out federal and state laws governing employer conduct toward employees. (Ask your state Labor Department and the federal Department of Labor for information.)

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Last updated: Jan 31, 2000


Barbara Weltman is an attorney and a trusted professional advocate for small businesses and entrepreneurs. She is the author with such titles as J.K. Lasser?s Small Business Taxes and Smooth Failing, and she contributes regularly to American Express OPEN and Her articles have appeared in the Wall Street Journal and U.S. News and World Report. Weltman is also the publisher of Idea of the Day and monthly e-newsletter Big Ideas for Small Business at and hosts radio shows and podcasts, including Build Your Business radio. She has been named one of the 100 Small Business Influencers in the U.S. for the third year in a row.

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