Cut Costs With Independent Contractors?

It's appropriate for a business owner to try to lower prices to customers, but fattening the bottom line at the employees' expense is not ethical.

Q: I recently learned that a very successful competitor -- who always seems to be undercutting my pricing -- employs very few of his staff directly. Most of his work is done by people he defines as independent contractors. (I hear that some of them used to be his employees, but he laid them off and promptly hired them back as "freelancers.") He apparently saves all the money that I pay for my staff's Social Security, unemployment insurance, worker's comp, health care and vacations, not to mention my HR administrative costs. Am I being a chump, or is he unethical?

It is not unethical for a business owner to try to reduce costs and lower prices to his customers, especially if it can be accomplished through efficiency, economies of scale and innovation. That's working smart. But fattening the bottom line at the expense of one's employees is not ethical. The most respected employers offer good benefits to full-time employees.

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Knight Kiplinger
Editor Emeritus, Kiplinger

Knight came to Kiplinger in 1983, after 13 years in daily newspaper journalism, the last six as Washington bureau chief of the Ottaway Newspapers division of Dow Jones. A frequent speaker before business audiences, he has appeared on NPR, CNN, Fox and CNBC, among other networks. Knight contributes to the weekly Kiplinger Letter.