Why Use Employees Rather Than Independent Contractors?

Companies like to use employees because it requires control of the physical details of how the work is performed.

Example:

A large manufacturing company uses expensive and large-scale equipment to produce its products. The machine has to be run by several persons, working in coordinated fashion, operating the equipment in a very uniform manner. In this situation, the factory worker cannot be an independent contractor because he or she cannot be given choices as to how, when and by what means he or she will perform the work.

Example:

A convenience store must schedule its workers at specific times, cash registers must be operated when customers approach the counter to pay, products to be sold and prices to be charged for items are uniformly determined. For the store workers to be considered independent contractors rather than employees, they would each have to be free to determine the items and methods used to sell the store’s merchandise, free from control by the store’s owner or management.

So companies perform their work through employees because they believe they can be most successful by controlling the times and physical methods by which their work is performed and by having a workforce committed to the company full-time. Exertion of control might enhance the company’s success but would also most likely be sufficient to render the agents as employees rather than independent contractors.

Some companies also use employees rather than independent contractors to save costs. For instance, a company might hire an attorney to be a full-time employee at a fixed salary of $60,000 to handle its legal transactions. Even assuming additional fringe-benefits costs increase the company’s expenses to $80,000 per year, a self-employed attorney performing work for the company an average 20 hours per week for a year would cost the company $104,000.