Determining the relationship
Hiring employees versus using independent contractors gives the employer different rights and responsibilities. With an employee the employer must do things like pay workers compensation, pay social security and medicare, pay unemployment insurance, pay federal, state, or local minimum wage, overtime, and holiday pay, they also must pay the company’s health insurance and contributions to retirement plans, if applicable. Aside from the monetary liability there may also be different legal liability the business owner could face; not knowing the difference between employees and independent contractors could leave a business owner vulnerable to many issues.
An employee is someone that a business owner hires for an indefinite period of time to do work as assigned by the employer. An employee is given the tools needed to complete the job, a space in which to the work, and the work should be done in the manner required by the employer.
On the other hand, an independent contractor generally does the following:
1. Brings their own tools;
2. Has their own employees;
3. Has their own business license;
4. Files their own taxes;
5. Maintains their own separate business checking account;
6. Invoices for any work done;
7. Keeps their own business records; and
8. Are free to work for more than one client at a time.
The business owner does not supervise the independent contractors work nor the work of the employees hired by the independent contractor. To show that they are not supervising the business owner must only schedule and inspect the work, but must not tell how to do the work. This degree of control over the work is an important concept when determining if there is an employee/employer relationship or not.
Tips for using an independent contractor
When hiring an independent contractor try to meet as much of the criteria as possible; get copies of the independent contractor’s business license, insurance information, evidence that they pay their own taxes, have a stated beginning and ending date, and have the contractor supply invoices for any payments they are owed. There should be a written contract describing the relationship and stating the type of relationship the parties intended to create. The employer should not control the work being done or the time it is being done (unless this is imperative to the work). The employer may only state what work is to be done and they may give a deadline of when the work is due.
While having everything written down may help, a court will look past an agreement and determine the relationship based on the actual work being done and the degree of control used by the employer. It is up to the parties to act in such a way that defines the terms of the relationship.
Alicia Levy, owner of the The Levy Law Firm, focuses on business law, contract drafting and review, and employment law. Alicia is active in the Spokane community and recently won the Inland Business Catalyst Magazine’s top 20 under 40 award. You may contact Alicia at 509-432-6881 or email@example.com.