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Independent Contractor Law

Independent Contractor

An independent contractor is someone who is hired to perform work, but is not an employee.  Sometimes it can be difficult to distinguish between an independent contractor and a regular employee.  Courts have used several different tests to determine whether someone is an employee or an independent contractor.  The IRS provides three broad areas of consideration:

1.  Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?

  • Type of instructions given
  • Degree of instruction
  • Evaluation systems
  • Training
2.  Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
  • Significant investment
  • Unreimbursed expenses
  • Opportunity for profit or loss
  • Services available to the market
  • Method of payment
3.  Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
  • Written contracts
  • Employee benefits
  • Permanency of the relationship
  • Services provided as key activity of the business

Consequences for Employer

If you are an independent contractor rather than an employee, it makes a signficant difference for your employer.  Your employer is not responsible for worker’s compensation, unemployment, social security, or any number of other expenses if you are an independent contractor.  It also affects the employer’s liability.  If an independent contractor is sued, the employer may not be liable in the same way it would have been for an employee’s actions.

Contact a Lawyer

If you are a small business owner considering hiring independent contractors rather than employees, you should contact a lawyer to discuss your options and to draft a contract for your independent contractors.  In order to preserve the tax and liability benefits of being an independent contractor, it is important to have a good contract governing the relationship.  The attorneys at Twin Cities Law Firm can help both business owners and prospective employees with drafting independent contractor agreements.  Contact us today to discuss your situation.