Before any business decides whether to hire permanent employees or to contract, it has to consider several factors before choosing which direction to take. This is because whichever decision the business takes has its pros and cons. After incorporating their company, Diana and Earl decide to contract Gina to offer customer services rather than employ someone for the position. As mentioned earlier, this move has its benefits as well as drawbacks. The advantages and disadvantages of opting to contract instead of hiring an employee are briefly discussed below.
One advantage of hiring independent contractors rather than employing a customer service employee to Fast Aid, Inc is that they will probably save money. This happens despite the fact that contractors are paid more per hour than employees. An employee has a lot of other payments attached to him that cost the company more. Examples include Social Security and Medicare taxes. Another advantage is that they can easily hire and fire contractors unlike with employees. This allows them to contract when they need a contractor for a specific job. The third advantage is that they might achieve high levels of efficiencies because most contractors are professionals. Fourthly, it reduces the likelihood of facing lawsuits. This is because employees have a lot of rights under federal and state law. Examples include rights to a minimum wage and protection against wrongful termination (Fishman, n.d).
On the other hand Fast Aid, Inc might experience the following disadvantages from this move. One, they might have less control over Gina, their contactor, unlike if they had employed. Supervision and monitoring over for independent contractors is hard. The second disadvantage is that the quality of work might be uneven because contractors come and go. This might compromise on quality because different contractors vary in quality of service. Thirdly, as much as a company can fire contractors at will, there is an independent contract agreement. If it fires an independent contractor and violate the agreement, the company might find itself in serious trouble for bleach of contract. Fourthly, if the independent contractor suffers on the job, the company might be liable for injuries. This is because unlike employees, contractors are not covered by workers’ compensation insurance, and hence can sue the company. Lastly, Fast Aid, Inc risks being audited by the government. This is because federal and state agencies prefer to see more employees than independent contractors because of taxation and insurance benefits (Fishman, n.d).
After Diana and Earl incorporated their business, Earl takes a loan from First National Bank and did not state that it was on behalf of Fast Aid. The bank files a law suit against Earl for the unpaid amount after Fast Aid is unable to repay the loan. Despite the fact that many people incorporate to gain liability protection, the protection applies when things are conducted formally (Rosen, n.d). In this case, Earl did not state that he was obtaining the loan for Fast Aid; not even informally. If the corporation is not managed formally, it will be hard for the court to know if the corporation is its own entity i.e. separate from the owner and the owner’s business assets. Because formalities were not observed, the bank can be able to penetrate through the shield that protects Earl as a corporate owner from extensive liability. Because of this, the bank stands a chance of winning the case.