Published by: Sharon McReynolds, PEO and Agency Partner
In my profession this is a question that is often asked, or should I say, should be asked by clients. Just because someone signs a contract or says he or she is an independent contractor, does not mean he or she is actually one. You must be careful that you do not have employees and non-employees doing the same job but not being offered the same pay, or the same benefits or having taxes withheld.
Placing employees into the incorrect category can result in an employer being responsible for not just the back-pay, but the taxes and unfortunately fines. You should consider some of the following in attempt to decide if in fact a person is an employee or an independent contractor:
- Is the service they provide fundamental to your business? Are they providing that service for a predetermined amount of time or project, or permanently?
- Are they investing his or her own resources in equipment and materials? Can they either profit or lose money from the relationship?
- If the individual’s primary income comes from your company and not from multiple companies that they may contract with, the classification may be employee as opposed to contractor. This would then result in in the Fair Labor Standards Act’s overtime protections and minimum wage requirements also applying to them.
- On the flip side, if someone provides their own tools to do a job and they also set their own schedule and has an agreement with you to complete a certain project or perform services for a certain amount of time, they would be considered an independent contractor as opposed to an employee.
Rule of thumb, a person is an independent contractor if the employer has the right to control ONLY the result of the work, but not the what will be done and how it will be done. Obviously not all work performed is black and white and we always suggest that you contact your CPA or employment law specialist. You can even ask the IRS or the DOL to examine the job description and give you advice in advance.