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When you pay an employee on W-2 basis, you incur the following expenses.

Social Security Tax: 6.2%, Medicare Tax: 1.45%, other expenses like Federal Unemeployment Tax(FUTA), State Unemployment Taxes (UI) and Worker's Compensation & Liablity Insurance: 3% - 5%. These taxes are often referred to as EMPLOYER PORTION OF TAXES.

Example: If you offer $50.00/Hr. Your Cost - Social Security @ 6.2% $3.10 + Medicare @ 1.45% $0.725 + Others @ 5% $2.50 = $56.325

You add your margin to the final cost. In a situation, where your consultant requests for 90%-10% - Keep your actual cost in mind.

Also, note that there are no Social Security, Medicare and FUTA/UI taxes for Students on OPT (Optional Practical Training) or CPT (Curricular Practical Training) . All employees pay State witholding taxes (if any) .

Tip: Employees also pay same percentage of Social Security and Medicare - These taxes are also known as FICA Taxes.

All these little costs are what drives people to use contractors and freelances.

Do you think more companies will look for ways to hire contractors instead of having employees?

The only difference is they do not have to run payroll, maintain workman's comp (I Guess for 3 months - Sarbanes Oxley Mandates work man's comp after 90 days even for Contractors - Not Sure though) and no Liability Insurance and freedom to terminate anytime, no severance payments bla bla.. American companies always enjoyed the comfort of hiring temps..

Now in these tough times, companies will look for ways to hire contractors..The easy way...