Independent Contractor vs Employee
Labor Law Training Series – Independent Contractor vs Employee
Labor Law Training Series – Independent Contractor vs Employee - Now before you rush off and consider someone an independent contractor...
So what are some of the differences of an independent contractor vs employee? As a general rule if the person paying for the work can only determine what the outcome should be and not exactly how the work is to be performed then the person performing the work could be considered an independent contractor. Now before you rush off and consider someone an independent contractor vs employee lets look at some more things to make sure you are doing this correctly.
Let’s say that you needed something welded and contacted someone out of the telephone book to perform the work.
Some examples would be if you are building something and you needed someone with a different skill to accomplish something. Let’s say that you needed something welded and contacted someone out of the telephone book to perform the work. This would in almost every case be considered an independent contractor. The person you contacted would be responsible for performing the work correctly and any damages if they make a mistake. They most likely would bring their own tools and equipment. They would be responsible for paying any taxes, such as self employment tax.
In the case above you contacted them and they performed a service. The only thing that you required was that they accomplish something. You can place other requirements on them also without it becoming an employee employer relationship, provided you don’t go too far. As an example you can place a requirement that they perform the work during your normal business hours but you shouldn’t be directing them when to take breaks or lunch. Now this by itself wouldn’t be the deciding factor for independent contractor vs employee, but it would begin to lay the ground work.
The real bottom line is whether someone is controlling the work of someone else.
The real bottom line is whether someone is controlling the work of someone else. In the example above it was pretty easy to determine independent contractor vs employee. But let’s use another example that may make it a little more complicated. Let’s say that you are a building contractor building residential homes. On every job you have the same person performing all the plumbing duties. You tell them what the job is, what time and day to be there, what type and quality of materials to use, what time you want them there and when they can leave, what tools and equipment to use even if they are theirs, when to take breaks, etc. Of course this would be considered an employee. In this example in order to be considered an independent contractor the person would only be told what job needed to be done and the basic time frame for it to be done by. The person requiring the work can inspect and determine if the job meets their expectations.
If you get it wrong when you are determining whether someone is an independent contractor vs employee, can cost you a lot as I mentioned above. Generally speaking a person that was deemed an independent contractor will not say anything until they learn differently by mistake. Once they report it and they are determined to be an employee vs independent contractor they are going to go as far back as they can to determine what this employee lost be being categorized incorrectly. Trust me when I tell you that most likely any benefits will fall in favor of the employee. If you are thought to have been egregious there may be other penalties as well.
Please understand that I am not a labor law attorney. I am only someone that has been in the business world forever and understands the consequences of getting it wrong. Whenever possible, error on the side of caution and not throw caution to the wind. The costs of making a mistake can be very high. Remember that ignorance is no excuse. I would strongly recommend visiting with a labor law attorney if you have any doubts. A great source for various types of legal documents is Rocket Lawyer. They have every type of employment legal document you can imagine and attorneys that they can recommend. All this at a cost that you can afford! In many cases the legal forms are free. Check them out!
As a business owner we sometimes wonder about the differences between an independent contractor vs employee. We are constantly looking for ways to save on labor without hurting quality or quantity of work.
One way that some businesses might fall into the trap of accomplishing this is classifying everyone as an independent contractor vs employee so that they do not have to pay payroll taxes, workers compensation, social security taxes, overtime, benefits, follow certain federal programs, etc.
Not so fast though!
If it was only that simple everyone would be doing it!
Just to be clear the law on determining this, The Fair Labor Standards Act, generally leans in the favor of classifying someone an employee versus independent contractor. In fact the rules mainly deal with controlling an individual versus the individual being able to operate independently, i.e., independent contractor.
Unfortunately there is no one rule that makes it crystal clear to classify someone as an independent contractor vs employee.
With that in mind let’s look at some factors that would help us determine what an independent contractor is versus an employee.
Controlling a person while on the job would play a huge part in determining whether someone is an employee or independent contractor.
As an example if the business owner dictated the stop and start times of an individual, when they went on breaks and lunch, and what they did while at the work site, the chances are extremely good that the individual would be classified an employee.
On the other hand if the business owner only dictated a window of time that work could be performed, and what the final outcome needed to be they just may be an independent contractor.
If the individual is performing the work when they want at their off site location using their own tools and equipment the chances are very good that they are a contractor.
In most cases a contractor can decided when and if they come to work without penalty from the business owner, unless of course they are not meeting the specifications of an agreement. In other words the business owner and the contractor agreed that the work would be finished by a certain date and that date has come and gone.
Another factor in contractor vs employee is the level of skill and whose tools and/or equipment is being used to produce the work.
Typically if the business owner’s tools and equipment are being used there is a better chance that the individual will be considered an employee versus independent contractor.
If the business owner is assuming all the risk for losses then this would be another reason to seriously consider the individual an employee.
So as an example, if an individual is being asked to produce two hundred widgets to a certain specification and the individual has to remake one hundred because they did not meet the business owner’s specifications, who is responsible for the financial lose to remake them? If it is the business owner’s responsibility then it strongly appears that the individual is an employee.
The skill level of the individual is another piece of the puzzle. Skills such as attorneys, accountants, electricians, plumbers, are just a few examples of very skilled positions that depending on many other factors might fall into the classification of contractor vs employee. Keep in mind that this alone does not determine their classification.
So let’s look at an example.
If you asked a Certified Public Accountant to perform your accounting duties at your business and this is the only work the CPA does, they do it at your facility, using your computer, and have done it for a few years, I would almost guarantee that they are going to be considered an employee.
On the other hand if the individual has many other businesses that they perform work for and do it at their own office on their own schedule they would be considered an independent contractor vs employee. Why? Because they are controlling the work and when it is being done, as well as, the paying the cost of the facility, utilities, etc. They are only responsible for the outcome of the work and nothing more.
There are many other factors that go into determining whether someone can be considered an independent contractor vs employee so make sure you consult with a legal professional for advice. Understand that nothing in this article is to be considered legal advice. It is solely based on my experience as a Human Resources Professional.
The cost of getting it wrong could be very detrimental to your business. You may become responsible for the retroactive back taxes, overtime, and benefits, if you wrongly classified someone a contractor and they should have been considered an employee.
Is the person doing work for you an independent contractor vs employee? In most cases they are going to be an employee since the test for classifying someone as an independent contract by the Fair Labor Standards Act is difficult. Please also understand that case law is being made every day from new cases being tested by the FLSA.
So before you rush off and classify someone as an independent contractor for the sole purpose of not wanting to deal with the hassles of having employees you better make sure you are correct. The penalty for making this mistake could be devastating to your business.
As an example if you are wrong you may have to pay all back taxes, overtime, and benefits retroactively. The truth be told you will unfortunately find out your wrong when a disgruntled person turns you in to the Labor Department. Good luck because your life is going to get pretty bad from that moment on if you didn't make sure beforehand that they were or were not an independent contractor vs employee.
For the most part the test comes down to whether the employer controls the individual or not. True enough there are many more pieces to the puzzle but this is the major test.
If you control more than just the overall outcome of the product or service the individual is providing to you then they are probably an employee.
As an example if you have a private accountant that does your business taxes along with multiple other businesses out of their own private building and the only thing you control is the information they need to prepare those documents they will most definitely be considered an independent contractor and not an employee.
On the other hand if that same accountant is only preparing your taxes on a full time basis in your facility on your computer system and comes and goes based on a schedule you provide they will most definitely be an employee.
One individual you are only controlling the outcome and the other one you have control over.
I hope this helped to answer your question, "Independent contractor vs employee."
Please also understand that nothing in this information that I have provided is to be considered legal advice. My expertise is in Human Resources and I feel confident that the information I have provided is accurate; however, I am not allowed to offer legal-advice. The information above is only my opinion and my personal interpretation of the FLSA.
There are many factors that go into determining the difference between an independent contractor vs employee!
As a business owner you need to be certain you are classifying them correctly since you are responsible for paying an employee's state and federal unemployment taxes, social security taxes, and state funded workers compensation taxes. Please understand if you are wrong it can be carried all the way back to when you originally began receiving services from the individual, regardless if you did or didn't understand the law. In worst case scenarios you may be subject to paying back overtime and back benefits. Finally, we must consider that a business is also responsible for certain state and federal regulatory requirements for employees that they would not be for an independent contractor.
So let's closely examine the differences between an independent contractor vs employee.
The Fair Labor Standards Act defines the differences between an independent contractor vs employee, but please understand that there have been many court rulings over the years that have interrupted this so bear in mind you need to be sure.
The major difference is control over the individual.
If you are in control of the individuals starting and stopping time at work they are most likely going to be considered an employee. As an example if you have directed the individual to report to the job site at 7:30 am, take a break at 9:30 am, lunch at 12:00 noon, break at 2:30 pm, and may leave for the day at 4:00 pm they would be an employee.
On the other hand if you direct an individual that work must only be performed between the hours of 7:30 am and 4:00 pm, Monday through Friday, yet you do not control when or if they come to work they just may be an independent contractor.
If you are controlling what they do and how they do it they are most likely an independent contractor vs employee. As an example, if an individual shows up at 7:30 am and you direct them to operate a certain piece of your equipment to produce x number of widgets to your exact specifications, they would almost certainly be an employee.
On the other hand if you specified exactly what type of widget you required yet the individual used their own equipment and produced it in any manner they wished provided it met your specifications they may be an independent contractor.
Another difference of an independent contractor vs employee would be if the work they perform for you is a sole source of income for them. This is where it can get difficult since the work they are performing for you may be their sole source of income at that moment in time.
As an example you are an owner of a construction company that builds new homes and you hire an independent contract to do all the electrical work for your new homes. This may be their sole source of income for the period of time you are building new homes. Other factors will come into play to give a final determination of whether they are an independent contractor vs employee.
Now on the other hand if the work continues for years and this is the only work the electrician performs I would Jean heavily on the fact that they will probably be considered an employee. Another factor is the type of work being performed. In the above example an electrician would be a good example of someone that could easily be considered an independent contractor because of the skill level that is required for that position. Of course it is not the only factor but a big one. On the other hand you would have a tough time trying to convince someone that a general laborer is an independent contractor.
So as we conclude, the major factors in determining, independent contractor vs employee, relies heavily of a couple of major things, control and responsibility for losses.
If the business owner is controlling the individual and assumes 100% of any losses they would be an employee. The business owner is not controlling anything other than the specifications of the final products and any losses incurred by the individual during the production phase would be their responsibility the chances are very good that they are an independent contractor.
Please understand also that nothing stated above is to be considered legal advice. It is only an opinion based on my personal experiences as a Human Resources Professional. Hopefully this will help you in determining whether someone is or is not an independent contractor vs employee. I strongly advise you to consult an attorney for your final determination since the consequences are severe if you are incorrect.