Independent contractors are an integral part of many businesses. For companies, they provide necessary services with less costs. For the contractor, there is potential flexibility and individual autonomy. That being said, penalties for misclassifying workers are steep and include heavy damages, lawsuits in state and federal court, as well as attorney’s fees. Historically, the line between employee and contractor has been somewhat grey. The Department of Labor (DOL) sought to clarify this issue with a Final New Rule. However, in recent weeks, the DOL stated that it will move to rescind the Rule (originally scheduled to take effect in May 2021). Therefore, existing law should guide employer’s classification of workers. Keep these tips in mind to minimize liability:
- Look at the totality of your relationship with a worker. Existing law dictates that Independent Contractor contractual agreements alone do not define the worker’s classification. In fact, the Internal Revenue Service (IRS) and related precedent indicate that agreements are the least determining of all factors defining the employment relationship. Employers should instead focus on the level of control and discretion they have over the worker’s assignments, schedule, and pay – among other things.
- Publicizing independent contractors as part of the “team” is a liability. If you advertise the services of independent contractors in a similar manner (i.e., Company website or LinkedIn) as your W-2 employees, there is likely an argument that they are part of the “team” for worker classification purposes. If they are truly independent, they would likely market their business individually. Employers can, of course, “partner” with other businesses – however, they should not be treated as “one in the same.”
- Be wary of immediately classifying seasonal workers as independent contractors. Have a busy time of your business and use the same team every year to assist you? Even if the team does not work for you all year, your direction and control of their work (and the regularity associated with their position on your team) may likely reflect employee status.
Feel free to reach out to me with any questions on the independent contractor classification.
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Theodora Stringham assists individuals, businesses, and organizations with growing successfully while minimizing liability. Focusing on real estate and personnel needs, Ms. Stringham executes sustainable plans for real estate development and employee matters. She provides comprehensive representation for everyday growth issues, including, but not limited to, re-zonings, site plan approvals, eminent domain/valuation concerns, employment discrimination, and disciplinary issues. Ms. Stringham’s scope of representation ranges from identifying potential liability and providing counseling/trainings, all the way through representation at trial.
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