"Backdoor Payroll Tax Cuts"

This article in Economist.com notes the trend of companies to fire workers and rehire them as contractors or consulants, thus putting the entire burden of payroll taxes on the worker.  GAW! Board Member Sara Horowitz, founder and Executive Director of the Freelancer's Union would argue with the Bureau of Labor Statistics [2005] estimate quoted here that 7.4% of the workforce is independent contractors. Her 2009 estimate is 30%. However, all would agree that reducing the payroll tax is a good economic stimulus.

IT SHOULD come as little surprise, given the libertarian bent of many attendees, that an overwhelming majority of participants at the Kauffman bloggers forum believed a more effective fiscal stimulus would involve reducing or eliminating the payroll tax. This is the tax employers must pay for each employee they hire. It primarily consists of half the payments an employee makes to Social Security and Medicare. The idea is that cuts will stimulate employment by making it cheaper to hire and retain workers (though to some degree a few firms are already removing it, by hiring more contract workers).
One participant, who writes about technology, remarked that it is not unusual for tech firms to fire their employees and rehire them the next week as consultants. This is essentially a backdoor payroll tax reduction for the employer. When a worker is considered a contracter they become responsible for their full tax burden to Social Security and Medicare (and the cost of health and pension benefits).
 
According to the Bureach of Labor Statistics, in 2005 7.4% of the labour force described themselves as independent contractors. As jobs become scarce and employers become reluctant to commit to salaried employees this figure may increase further.  [More. . .]