One of the biggest mistakes a company can make is hiring an independent contractor and then having that person be reclassified as an employee by the government.
If that happens, you’ve just been handed a mess involving taxation, benefits, insurance and a host of other legal liabilities.
The best way to keep that from happening is to make certain that you understand what makes independent contractors different from employees. Use these tips as a start:
1. Remember that there is no one factor or “bright line” that makes someone a true independent contractor. The government evaluates the overall situation. For example, you may have an independent contractor who is financially dependent on a single client — but if that turns out to be the independent contractor’s choice to keep those limitations, the client is not a de facto employer.
2. Someone stands a higher chance of being considered a true independent contractor if he or she:
- Is paid by the assignment, piece or job
- Is able to perform service for multiple companies at once
- Can accept or decline the job assignment at will
- Has unique skills or expertise that he or she brings to the job
- Determines the hours he or she works
- Works largely from home or otherwise off-site
- Hires (and pays) assistants or subcontractors
3. A key issue is the amount of control exerted by the company or employer over the worker. You can have an employee who sets his own hours and works at home just as easily an true independent contractor who does the same things — the major difference is the balance of power between the individual and the entity for which he or she is providing a service. An employee will have far less autonomy and control over the situation than an independent contractor.
Sometimes, it’s fairly easy to tell the difference between an employee and an independent contractor, but if you have any doubts you’re wise to consult an attorney before you end up in violation of the Fair Labor Standards Act.
Source: DOL, “Is a Worker an Employee or Independent Contractor?,” accessed Sep. 15, 2017