Is your independent contractor really an employee?

In law school, there are entire classes on this. Court cases continually address the issue. Information from state, federal and small business agencies abounds — in print and online.

Yet again and again, I see violations — so-called contractors whom I know in the eyes of the law would be considered employees. So please, employers, take heed: Just because you call a worker an independent contractor doesn’t mean he is. And if you get it wrong, you’ll owe more than back Social Security taxes. It could cost a bundle in penalties.

Part wishful thinking — it’s tempting to skip the cost of benefits, payroll taxes and covering equipment expenses — and part ignorance of the law, many workers considered by employers to be contractors simply aren’t. That’s also because it’s not just one thing (e.g., work location or irregular hours) that defines worker status.

It’s a balancing test of several factors. A sum total of evidence.

Employee vs. independent contractor: The laws

Three agencies and their laws govern the classification of Idaho’s workers: the Idaho Industrial Commission (workers’ compensation law), the Idaho Department of Labor, and the Internal Revenue Service. Each uses its own guidelines and makes its own decision when classifying workers.

Generally speaking, it’s about control. Controlling the work tasks, the work tools, and time. Who determines each? Consider the following from Business.Idaho.gov:

1. DIRECT EVIDENCE OF 'THE RIGHT TO CONTROL'

Compliance with instructions. “Control” is present if the person for whom services are performed, i.e., the employer or her representative, has the right to require compliance with instructions throughout the process, not just for the final product.

Training. Mandatory training via meetings, classes (in person or online), or apprenticeship with a more experienced worker indicates right to control.

Integration. Integrating the worker’s services into the business’s operations indicates the worker is subject to direction and control.

Personal delivery. If the service/work “must” be rendered personally (not by an employee of the independent contractor) it may suggest the employer’s right to control that.

Hiring, firing, supervising and paying assistants. If the employer hires, fires, and/or pays workers related to the task in question, that indicates control over all workers and regular employment. But if a worker engages his own assistants, he may be an independent contractor.

Work hours. Control is more indicated if set hours of work are established by the employer or person for whom services are rendered, or if the worker works mostly full time for the same business or employer.

Work details. If the worker performs services in the order, sequence or ways determined by the employer, the worker is likely an employee.

Expenses. Whoever pays them more likely is in charge.

Rejecting work opportunities. If the worker has the right to accept or reject work on a particular project without fear of loss of employment, this indicates an independent contractor.

More than one employer/client. Working for more than one firm at a time, or making services available to the general public consistently, indicates greater likelihood of an independent contractor relationship. But it is possible to be a part-time employee for one employer, and an independent contractor for another, depending on each relationship.

2. METHOD OF PAYMENT

Pay. Paying regularly at specific intervals generally points to an employer-employee relationship.

Profit or loss. Who takes profit or risks loss? If the worker, she’s probably an independent contractor.

3. FURNISHING TOOLS OF WORK

Working on the employer’s premises. This obviously varies depending on the nature of work as some types can only be on-site. Otherwise if work must be completed on-premises this tends to show control over the worker.

Furnishing tools and equipment, investment. If the employer/service recipient furnishes significant tools, materials, necessary capital or other equipment, this indicates a direct employment relationship. An independent contractor should own his/her own tools and equipment.

4. RIGHT TO TERMINATE, WITHOUT LIABILITY

Continuing relationship. A continuing relationship tends to indicate a direct employment relationship, even if the work is performed at recurring irregular intervals.

Right to discharge. The right to end the work relationship at any point, without liability, may indicate a direct employment relationship.

Each of these items, and those considered by the IRS, is only one factor and not of itself determinative. Courts and agencies look at the picture as a whole, adding up all factors and indications to make a determination.

For more information see also Irs.gov/businesses/small-businesses-self-employed/independent-contractor-defined. For the best advice, consult a business attorney and your CPA.

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Sholeh Patrick, JD, is a columnist for the Hagadone News Network. Email: sholeh@cdapress.com