BUSINESSES: EMPLOYMENT LIABILITY

The Independent Contractor

By: Matthew Snow

Businesses are constantly searching for ways to limit liability and decrease costs. The use of independent contractors rather than employees is one method of achieving these goals. If done correctly, the use of independent contractors can save a company a lot of money. However, if done without proper planning it can invite a lot of grief.

Traditionally, a company pays an independent contractor a sum which does not include the employer’s share of income tax and Medicare withholding, health or worker’s compensation insurance, or other employee benefits. Further, the company is not bound by any wage or overtime rules.

These facts make the use of independent contractors very appealing to employers. However, the risk is that if an employer “uses and controls” the independent contractors like their employees, various government agencies, not limited to just the IRS, may deem them employees and penalize you in addition to requiring you to pay back benefits, e.g., overtime, insurance, etc.

To maximize the benefits and minimize the risk of having independent contractors reclassified as employees, an employer should use “Independent Contractor” or “Work for Hire” contracts. These agreements, at a minimum, must include an acknowledgement by the independent contractor:

1. That he is required to maintain the proper licensing required by his industry.

2. That he is not an employee of the company.

3. That he is aware that payments to him will be reported to the IRS via 1099’s (if annual total is greater than $600.00).

4. That he must carry his own health, worker’s compensation and business insurance.

5. That he understands the job to be performed.

6. That he is able and willing to perform the work without any training by the company.

7. That he will use his own resources to complete the job.

8. That he will invoice the company for services rendered.

9. That he is free to provide services to other companies.

10. That he is aware of the standard of satisfaction expected by the company; and

11. That his work will not be deemed satisfactory if not in compliance with such standards.

The less control exercised over their work schedule and how they do the job, the stronger your evidence is that they are not employees of your company. To further protect yourself, do not identify them as employees of your company (verbally or in writing, i.e. [business cards, contract proposals, etc.]). The use of “Independent Contractor” and “Work for Hire” agreements lays the foundation that the service p provider is an independent contractor and not an employee of your company.

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Disclaimer: This information is intended for general interest only. It is not intended to be nor should it be deemed as legal advice. Please consult with one of our experienced attorneys at Biberaj & Snow for the best advice specific to your needs.