In a rough economy companies are trying their best to save costs anyway they can, I get that. One place it really does not make sense to try and "save" is on hiring contractors direct. Microsoft used to do this all the time until a contractor filed a class action against them for discrimination. How's that you ask? Well, back in the dot com days, MS hired people on a temp basis, but paid them with MS checks, and no middle man. Since they called these people temps, they did not offer them any benefits, like stock options, health coverage, 401k and so on. When stock prices went crazy, all these so called temps, missed out on becoming instant millionaires (remember those days?). Anyway, they sued and MS lost. The judge asked, is the "temp" doing the same job as a perm person? Are they receiving payment from the same source (a MS check)? Answer was yes and they lost.
Now days the possibility of an instant millionaire no longer is a big risk. What is a risk though is that same discrimination. This time for not allowing the temp health care coverage, or not allowing them a 401k that others get. If they are getting a check directly from the employer, than why are they not getting the benefits? If the temp gets hurt running, or skiing can they come after their employer for medical bills? They can if they did not receive medical coverage other employees were offered.
Last point, are you withholding payroll taxes for the temp? Are you paying employer payroll contributions for that temp? If not, and you are saying the temp is a 1099, make sure they meet the definition of a 1099. That means you pay them by the project (not the hour), you do not manage their time or work. You don't provide them with any company supplies (computer, desk, chair, space...). If any of these items don't fit what you are doing, the IRS will have an issue with your company...and don't mess with the IRS, they don't seem like such nice people.
For all these reasons, we suggest using an agency to either payroll your person or help you find them and then payroll them. Yes, it is self serving since we are an agency, but it is the world right now and for a few bucks an hour, why not have this security?
