In today’s economy, employers are trying to find ways to save money while either retaining their existing employees or increasing their workforce. One technique that has been on the rise for employers is classifying individuals as independent contractors, rather than as employees. By doing this, employers theoretically save money by not having to provide the same benefits they otherwise have to provide to employees, such as health insurance, workers’ compensation insurance and vacation time. In addition, by classifying an individual as an independent contractor rather than an employee, the employer does not have to pay any overtime or Social Security taxes with respect to that individual.
What determines whether an individual should be considered an employee or an independent contractor? In making this determination, courts have held it depends on whether the employer has the right to control the time, manner, and method of executing the work. In making this determination, some of the factors courts have looked at are the level of supervision provided, whether the employer or individual provides the equipment used for the job, the level of skill required, where the work is performed, whether the work is limited to a particular project and whether the work is an integral part of the business of the employer. It has been said that an independent contractor renders service that represents the will of his employer only as to the result of the work and not as to the means by which the work was accomplished.
There have also been instances where an individual did not understand they were being classified as an independent contractor, and at the end of the relationship with the employer, they have gone to the Department of Labor to file for unemployment benefits. However, independent contractors are not eligible for unemployment benefits. If the Department of Labor believes the individual should have been classified as an employee, and not an independent contractor, this can result in an audit of not only that individual’s employment status, but of every individual working for that employer.
During the audit, the Department of Labor has the right to review employment records for previous years for all individuals who worked for the employer, as well as those of individuals currently working, and if they find irregularities, they will require the employer to make restitution. Unfortunately, in this situation, what may have started with an issue involving one individual has the ability to cause far more significant harm for the employer.
As with most legal matters, it is always wise to seek guidance prior to making a decision that can have far-reaching consequences.