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Your Worker: Independent Contractor or Employee? Factors to Consider

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     Business owners, generally, are responsible for withholding of  income taxes, withholding and payment of Social Security and Medicare taxes, and payment of unemployment tax on wages paid to an employee. Where the individual service provider is an independent contractor, you generally are not responsible for withholding or paying any taxes on the payments provided to the independent contractors.

     Before engaging an individual's services, examine the contemplated business relationship. In determining whether the individual providing the service, is an employee or an independent contractor, consider all evidence that shows a level of control and/or independence together.  The weight, not necessarily quantity, of each factor needs to be assessed.

A. Some Factors to Consider

• Were other individuals with same responsibilities in the past, classified as employees at the Company?
• Are or were individuals in the same or similar positions within the company treated as employees?
• Is the person paid the same way that other employees are paid; or paid per task or milestone (or per hour)?
• Does the person have a risk of loss in the transaction?
• Is the Company’s right to terminate at-will, rather than only in event of failure to render deliverables or perform?
• Is payment contingent upon achieving milestones or the like?
• Does a significant segment of the industry treat individuals, performing these particular services, as employees?
• Does person have a level of control over certain aspects of the Company, e.g., managing business operations, supervising day-to-day activities, ensuring compliance, etc.?
• Are all expenses paid by Company?
• Are services of person available to the relevant market?
• Will the person make a significant investment  in the project/services?
• Does the company have a right to refuse payment for non-performance?
• Will 1099-Misc be filed and issued timely?
• Will the person invoice the Company?
• Is there a contract in writing?
• Will there be withholdings?
• Will the Company provide training or instruction to the person?
• Will the Company offer benefits to the person?
• Will the Company control the hours or place of performance?

     "Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.”

B. Obtaining IRS determination. 

     The IRS will provide you with an official determination of the individual service provider’s status upon the filing of the appropriate form.  However, note, it may take more than six months to receive a determination.

C. Consequences of Misclassification.

     If you classify an employee as an independent contractor, penalties can be significant and imposed by government authorities including workers compensation boards and tax authorities and civil judgments.  In addition, some misclassifications can result in personal liability and/or criminal charges.

     Make sure you properly classify workers via obtaining the advice of a compentent business lawyer or tax attorney, before entering into a independent contractor agreement or employment agreement.

     For more information on this subject and other business related articles and information click here:

www.contactmylawyer.com/contractor-or-employee  

     Click here to schedule a consultation from a Boston business lawyer and Maine Business Lawyer.

When you are ready to discuss the legal issues associated with your business, click here to contact Michelle L. Grenier, Esq.

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