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This is not a means to avoid payroll taxes. They're still being paid by the contractor. And in a way that costs the corporation money, if contractors have to pay the tax out of after-tax income, because then they'll demand higher compensation to account for it, by the amount of the tax plus the amount of the tax due on the increase in compensation.

There are other reasons corporations prefer workers to be contractors, but that isn't it.

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In the UK both employer and employee pay payroll taxes (national insurance) at about 13% of salary, additionally employers must pay a minimum of 3% of salary to a pension.

Contractors paid themselves a minimum salary to avoid the payroll taxes. They then took the rest of their earnings as dividends from their personal services company instead, the combination of payroll taxes + income taxes being higher than taxes on dividends.

Since that ruse has been heavily restricted, employers have had to increase contractor pay to make-up for contractors having to pay more income tax + national insurance.

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