Article Written By: Katie Farrell, Staff Writer
It is vital that you understand the distinction between independent contractors and employees; for it affects both employees and employers alike.
As an employer, you may genuinely believe that you have hired people to perform services for you as independent contractors. You may discover that by law they are considered employees and that you are liable for unemployment taxes and interest. As an employee, you may believe that you were hired as such and are entitled to those benefits afforded to an employee, yet under the law are considered an independent contractor, or visa versa.
Whether the relationship is one of employer-employee will depend on several factors. These include how much supervision, direction and control you have over the services.
Employer/Employee Relationship and its Factors
The courts have found that no single factor or group of factors conclusively define an employer-employee relationship. Rather, all factors are reviewed to determine the degree of supervision, direction and control exercised over the services. Generally, an employer controls what will be done, i.e. the manner, means and results.
An employer-employee relationship may exist if you:
- Choose when, where and how they perform services
- Provide facilities, equipment, tools and supplies
- Directly supervise the services
- Set the hours of work
- Require exclusive services (An individual cannot work for your competitors while working for you.)
- Set the rate of pay
- Require attendance at meetings and/or training sessions
- Ask for oral or written reports
- Reserve the right to review and approve the work product
- Evaluate job performance
- Require prior permission for absences
- Have the right to hire and fire
How an individual is compensated is another indicator of worker status. Employees typically are paid a salary, an hourly rate of pay or a draw against future commissions with no requirement for repayment of unearned commissions. Employees may also receive certain fringe benefits, including an allowance or reimbursement for business or travel expenses.
Nature of the services performed is also key to deciding if a worker is an employee or an independent contractor. Unskilled or casual workers are usually employees because their labor is often supervised. However, even professionals such as doctors and lawyers, who have much freedom to perform their duties, may be employees if they are subject to significant control.
Control- The courts have also found that workers may be employees and that an employment relationship may exist if the employer controls important aspects of the services performed, other than results and means. For example, a referral agency usually does not directly supervise the individuals it refers for assignments. It could be their employer, if it controls such important aspects of the services as:
- Client contact
- Billing and collection from clients, and
- The individual's wages
Independent Contactor Relationship and its Factors
Independent contractors are free from supervision, direction, and/or control in the performance of their duties. It is understood to mean that they are in business for themselves, offering their services to the general public.
Signs of independent contractor status include a person who:
- Has an established business
- Advertises in the electronic and/or print media
- Buys advertising
- Uses business cards, stationery and billheads
- Carries insurance
- Keeps a place of business and invests in facilities, equipment and supplies
- Pays their own expenses
- Assumes risk for profit or loss
- Sets their own schedule
- Sets or negotiates their own pay rate
- Offers services to other businesses (competitive or non-competitive)
- Is free to refuse work offers
- May choose to hire help
Contact an Attorney
The distinctions between employees and independent contractors are vast and extremely complicated. Claims under this area of law require, experience, and an excellent understanding of the minute details that can make or break a case. For example, an employer-employee relationship may exist regardless of how the hiring party describes it, if you give a worker a 1099 Form rather than a W-2 Form, they may still be an employee. Persons who work for you may qualify as employees under the law, even if you have the person sign a statement claiming to be an independent contractor or they waive any rights as an employee.
For reasons such as this, it is imperative to hire a professional in the field by contacting an experienced attorney. Get informed and ensure your legal rights are protected.