You hire 3 workers as independent contractors at $25/hour for 160 hours each on a project. What is your total labor cost including required taxes and insurance?
Correct Answer
A) $12,000
For independent contractors, you only pay the agreed rate with no additional taxes or insurance. Total cost is 3 workers × $25/hour × 160 hours = $12,000. Contractors are responsible for their own taxes and insurance.
Why This Is the Correct Answer
When hiring independent contractors, the general contractor only pays the agreed hourly rate with no additional taxes, insurance, or benefits. Independent contractors are considered self-employed and are responsible for paying their own self-employment taxes, liability insurance, and workers' compensation. This is a fundamental distinction from employees where the employer must pay additional payroll taxes, workers' compensation, and unemployment insurance. The calculation is straightforward: 3 workers × $25/hour × 160 hours = $12,000 total.
Why the Other Options Are Wrong
Option B: $13,200
$13,200 incorrectly assumes you must pay additional costs like payroll taxes (Social Security/Medicare) which would be required for employees but not independent contractors.
Option C: $14,400
$14,400 incorrectly assumes you must pay workers' compensation insurance and other employment-related costs that only apply to employees, not independent contractors.
Option D: $15,600
$15,600 incorrectly assumes you must pay the full range of employment taxes and insurance (payroll taxes, workers' comp, unemployment insurance) that are only required for employees.
Memory Technique
Remember 'IC = Independent Cost' - Independent Contractors only cost what you agree to pay them, nothing more. Employees cost 'Extra' beyond their wages.
Reference Hint
Florida Building Code Chapter 1, Section 105 (Contractor licensing and employment classifications) or Business and Finance reference materials on independent contractor vs. employee classifications
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