Don't Treat Contractors like Regular Employees

It is not a good idea to treat contractors the same as regular employees. By definition, a contractor is in a different relationship with the company, and it is important to set boundaries so the difference in the relationship is maintained.

Among other things, contractors do not receive employee benefits from the company, like health and disability insurance, and they pay their own taxes. Employers do not pay payroll taxes for contractors like they do for employees. If a contractor is reclassified as an employee by a government agency or court because the contractor was, in fact, treated like an employee and did not meet the contractor tests that different agencies use, it can be very costly for the employer. Employers can be held liable for overtime, employee benefits, various taxes, statutory penalties, etc. These are very expensive penalties, as Microsoft learned in the late 1990s when scores and scores of contractors and temporary workers were reclassified as employees.

The economic downside of reclassification of a contractor as an employee usually far outweighs concerns about whether contractors feel they are a part of the daily corporate culture. Contractors may be considered by the company as a regular part of the workforce — but because of the penalties associated with misclassification, it is important to observe different treatment. This does not mean contractors need to be treated like second-class citizens. Depending on how contractors are used, companies can find a myriad of ways to welcome them into the corporate culture while treating them differently from regular employees. But concern about a contractor being offended by being treated differently should not override the need to observe differences.

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Barrie Gross University of San Francisco’s School of Business and Management

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