Independent or Not?
Over the years there have been debates going on as to whether a person is classified as an Independent Contractor (IC), or an employee. In another words, how to classify a worker as an IC vs. an Employee! Over the years this issue has come up with courts and various regulatory agencies, such as, the IRS and the Department of Labor. In general, IRS and the Department of Labor (DOL) would tilt towards classifying a worker as an Employee rather than a IC. Now, these are general tendencies the actual facts and outcomes may vary.
On the other hand the business community would look at the issue more in economic terms and costs in classifying worker as an IC. More importantly, an employer looks at the performance as the base criteria. If an IC does not perform in a satisfactory manner he/she can be replaced easily. From employer’s perspective, employees need to be trained, and require constant supervision and not easily replaced.
What is at Stake?
For many a lot! For many stakes include payroll taxes, unemployment contributions, employee benefits, vacation, workers comp. etc. These costs add as much as over 20% to the payroll costs.
So How Do You Make a Sound Determination?
At the onset, let us say that there are no hard-and-fast rules but just the guidelines, unless in a particular industry this issue has been settled in courts.
The main factor in determining the classification is how much control the employer exerts over the conduct and the manner the work is performed. If the person:
- Reports to work on a set time, just as any other employees (as opposed to work relatively speaking at his/her convenient time?
- Follows the rules of company’s employment policies?
- He acts like an employee and reports to his/her superior on a constant basis?
Yes to any of these questions may indicate that this worker is an employee rather than an IC.
The following “Guided Check List” is a great help in making the determination.
The other factors that may help in determining the status of an IC are:
- Does person uses his/her own tools, equipments, accessories and supplies to do the job?
- Does this person also perform similar tasks for others?
- Does this person conducts his/her own business?
A Yes answer to any of these questions may indicate that this person is an IC.
Again to emphasize the point that unless you are in a particular industry where this issue has already been settled, you are advised to use caution. Take the steps below to ensure proper classification in order to avoid any future claims.