I work at a creative firm part-time. No taxes, Medicare, or Social Security are taken out of my paycheck. While I only work a short amount of hours a week, I work on the premises and get paid an hourly rate. They provide my computer & software and determine how many hours I can work per week (my hours have been cut since I began working there.) It seems like I am an employee, but why aren’t Social Security and Medicare taken out of my paycheck?
Let’s make it clear: the company treats you as a contractor – but they probably should have treated you as an employee, assuming they control how you do your work.
Technically, it’s a complicated decision whether you are an employee or a contractor – but the most important factor is whether they control how you do your work. Part-time, providing computer and other factors matter too, but not as much as who decides how the work should be done.
You asked why they do it? Because it’s cheaper and less hassle for them, that is why. No payroll taxes, no benefits, no unemployment, much less paperwork.
You can raise the issue with your company or even with the IRS, but you will risk your job, so it may not be worth it. However, before you curse your employer, consider that there’re huge benefits in being treated as contractor: you can deduct your business expenses, your health insurance, and many other things. Ask an experienced tax person if you’re not sure how to get tax benefits from being a contractor. These tax benefits can easily outweigh the drawbacks.
In short, you may be better off as a contractor!