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Using an independent accountants, pros and cons

While hiring employees is great for some companies, using an independent account can also provide many benefits, but it still does carry some risks. Let's take a look at the pros and cons of using an independent accountant instead of an employee.

Advantages:
- Cost savings
o Federal tax withholding - with independent accountants employers do not have to withhold federal income tax which has to get paid to the IRS certain times of the year. With independent accountant the employer only needs to send in a 1099 to the IRS at the end of the tax year.

o Social Security and Medicare taxes - with employees the employer has to match the employee's withholdings for Social Security and Medicare taxes, but independent accountants are responsible for paying this tax themselves.
o Federal unemployment taxes - for every employee a company hires they have to pay federal unemployment taxes for that employee, since independent accountants are not employees the employer does not have to pay federal unemployment rates for them
o State taxes - like federal income taxes state taxes must be withheld from an employee's paycheck and sent into the state in accordance with the states guidelines employers do not have to take this step with independent accountants only a 1099 needs to be filed with the state. Employers also do not have to pay state unemployment taxes for independent accountants
o Workers' compensation insurance - since the independent accountant does not work as employee, workers' compensation insurance does not have to be paid for them.
o Employment benefits - while not all employees offer benefits if your company does you will save money by using an independent accountant because you do not have to pay for their benefits such as sick days, holiday pay, medical benefits, etc.
o Office space and equipment - by hiring independent accountants they usually provide their own office space and equipment because they do not work in your office, but they choose where they want to work
- Reduced liability - because independent accountants are entirely responsible for their own conduct. While they are performing work for you, if they misrepresent your accounts in your financial statements they are the ones who will be in trouble (although you still could be held responsible if you knew about the misrepresentation).
- Flexibility in hiring - this is an added benefit because you are not committed to the independent accountant for a long period of time. You get to decide how long you will need their services and how often you will need their services. This is usually stated in the agreement that you and the independent accountant will draw up before work begins.
- Do not have to provide continuing education - because accounting laws can change with time and tax laws are constantly being updated every year, accountant must keep current with the new developments in their profession. As an independent contractor it is up to them to take the continuing education classes to stay current.

Disadvantages:
- With employees when you hire them you can train them to do the job exactly how you want it done, you can supervise the employees closely to make sure that they are doing the job to your specifications, and you can control how the employees are doing the job. You can not do this with an independent contractor, once you hire an independent contractor you must leave them alone to do the specific job, you can not give advice or tell them how it should be done.
- When you hire employees they are not working for your competitors when they are working for you. With independent accountants they can be working for your competitors and you at the same time.
- Because of the added benefits you give your employees they usually have a reason to stay with the company for a long period of time (as long as they are happy working there) but independent accounts only care about themselves and their bottom line, they have no loyalty to anybody (but if they want to build a good reputation they will be loyal to their customers).
- Sometimes an independent accountant's quality of work might be uneven because they are overwhelmed with their other companies or are distracted with how much they have to do. You can get this with employees too, but if the employee is only in charge of accounts payable it is not as hard as doing accounts payable and accounts receivable and preparing the financial statements.
- The IRS and state government looks closely at people who are hired as independent accountants to ensure that they are not misclassified because it is easier for an independent accountant to avoid paying taxes then it is for an employee.
- If you do misclassify an independent accountant your company can be audited and ordered to pay back taxes and other things that were not withheld from the independent accountant

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