If you hire someone as an EMPLOYEE then you will owe payroll tax on the wages. This costs more than the independent contractor.   Please look at the following:

If the payer of the money desires to gain some relief from the excess costs due to any employer/employee classification, then the payer might consider an agreement with the worker to reduce the rate of pay to help with the costs that would ordinarily be paid by the self-employed.  The following will illustrate how the payer might make the attempt to accomplish this:

If this were an independent contractor you would not have the payroll tax cost. Therefore what can be done to reduce that payroll tax cost?

Well, you could ask the driver to reduce the amount of the pay as you are paying a part of the payroll taxes - if he were an independent contractor he would be paying both portions of the payroll taxes instead of splitting them with you. If the pay to the driver were to be reduced by an amount to help you pay those payroll taxes, then you would be in a cash flow position closer to that of the independent contractor status.

There are many factors to consider whenever one is determining whether the relationship is that of a customer/independent contractor or that of an employer/employee.  The following is only a partial listing:

1. The IRS will decide the relationship - not the payer

2. The service provider may not fully understand the relationship and make a complaint

3. There may be federal labor laws involved

4. There may be ERISA laws involved

5. There may be personal injury events to consider

6. There may be general liability issues to consider - who is covered for what

7. There may be many other issues that should be included and not discussed herein

  Engagement Status Letter ~ WARNING!

Disclaimer and Warning - From Bob Parrish CPA, P.C.