MENUMENU
  • FREE RESOURCES
  • PREMIUM CONTENT
        • SEE MORE
          PREMIUM RESOURCES
  • HR DEEP DIVES
        • Coronavirus (COVID-19) Resources for HR Professionals
          Employment Law
          Labor Law Posting Requirements: Everything You Need to Know
          Recruiting
          businesswoman selecting future employees on digital interfaces
          Recruiting Resources for HR & Hiring Managers
          Performance Management
          vector image of young female making star rating
          Performance Review Resources
          Employment Law
          Understanding Equal Employment Opportunity and the EEOC
          Recruiting
          Onboarding Resources for HR & Hiring Managers
  • CORONAVIRUS & HR

  • LOGIN
  • SIGN UP FREE

HR Morning

MENUMENU
  • FREE RESOURCES
  • PREMIUM CONTENT
        • SEE MORE
          PREMIUM RESOURCES
  • HR DEEP DIVES
        • Coronavirus (COVID-19) Resources for HR Professionals
          Employment Law
          Labor Law Posting Requirements: Everything You Need to Know
          Recruiting
          businesswoman selecting future employees on digital interfaces
          Recruiting Resources for HR & Hiring Managers
          Performance Management
          vector image of young female making star rating
          Performance Review Resources
          Employment Law
          Understanding Equal Employment Opportunity and the EEOC
          Recruiting
          Onboarding Resources for HR & Hiring Managers
  • CORONAVIRUS & HR
  • Employment Law
  • Benefits
  • Recruiting
  • Talent Management
  • Performance Management
  • HR Technology
  • More
    • Leadership & Strategy
    • Compensation
    • Staff Administration
    • Policy & Procedures
    • Wellness
    • Staff Departure
    • Employee Services
    • Work Location
    • HR Career & Self-Care
    • Health Care
    • Retirement Plans

Employee or independent contractor? 3 ways to tell

Christian Schappel
by Christian Schappel
January 25, 2011
3 minute read
  • SHARE ON

records
When an independent contractor was fired, he retaliated … by suing the company where he worked for misclassifying him. He wanted back pay for the 26 hours of overtime he worked each week for 12 years. Did he win?
Yes. But what lead to the company’s costly downfall?
It got caught in the trap many employers have found themselves in … one in which contractors and businesses have a strong working relationship until something goes wrong — like when the relationship ends.
The man, a maintenance worker for a property management company, worked his job for 12 years — without a complaint about his contractor status. And when he sued, the only leg the company had to stand on was that he’d been working there for more than a decade and never once made a peep about his classification.
Lesson: Never assume classification decisions are OK simply because nobody’s objected to them — even if the classification has stood for years.
It’s important to revisit job descriptions frequently and compare them to what employees are actually doing day in and day out. The reason being that job duties evolve over time, and employees who were once classified properly may need to be reclassified.
What companies should do
The Internal Revenue Service (IRS) says there are three factors companies should evaluate to determine whether someone is an independent contractor or an employee:

  1. Behavioral control. If the business has the right to control or direct not only what work needs to be done, but how it gets done, then the worker is most likely an employee.
  2. Financial control. If the person has a significant investment in the work being performed, he or she may likely be an independent contractor. Also, if the person can earn a profit or incur a loss, that’s an indication the person’s in business for him or herself and is an independent contractor.
  3. Type of relationship. The IRS will also look at how the worker and the business owner perceive the relationship. If the person receives benefits — like insurance, a pension or paid leave — that’s usually a giveaway that the person’s an employee.

Determining factors

Here are the factors the court said gave away the fact that the maintenance worker was an employee:

  • The man was engaged in the core work of the business, as opposed to doing something that required special skills.
  • He was treated like an employee. He worked on the premises, and the company set his schedule, monitored his work and disciplined him when his work fell below expectations.
  • He had no significant investment in the work being done. He also had no opportunities to incur a profit or a loss (he was paid a regular salary).

Ways to ensure contractor status isn’t jeopardized

There are a number of reasons companies like to hire independent contractors — saving on taxes, overtime, benefits, etc.
And if that’s the route you want to go down, here’s a list of things you should do to make sure workers keep their contractor status:

  • Refrain from trying to dictate the day-to-day duties of contractors and how they get their work done.
  • Structure relationships so contractors have the ability to incur a profit or a loss, rather than just paying them an hourly rate or salary.
  • Keep them separate from your company. In other words, don’t give them business cards, invite them to your employee-only holiday party or issue them W-2s.

Cite: Bulaj v. Wilmette Real Estate

Get the latest from HRMorning in your inbox PLUS immediately access 10 FREE HR guides.

I WANT MY FREE GUIDES

Keep Up To Date with the Latest HR News

With HRMorning arriving in your inbox, you will never miss critical stories on labor laws, benefits, retention and onboarding strategies.

Sign up for a free HRMorning membership and get our newsletter!
  • This field is for validation purposes and should be left unchanged.
HR Morning Logo
  • Facebook
  • Twitter
  • Linked In
  • ABOUT HRMORNING
  • ADVERTISE WITH US
  • WRITE FOR US
  • CONTACT
  • Employment Law
  • Benefits
  • Recruiting
  • Talent Management
  • HR Technology
  • Performance Management
  • Leadership & Strategy
  • Compensation & Payroll
  • Policy & Culture
  • Staff Administration
  • Wellness & Safety
  • Staff Departure
  • Employee Services
  • Work Location
  • HR Career & Self-Care

HRMorning, part of the SuccessFuel Network, provides the latest HR and employment law news for HR professionals in the trenches of small-to-medium-sized businesses. Rather than simply regurgitating the day’s headlines, HRMorning delivers actionable insights, helping HR execs understand what HR trends mean to their business.

Privacy Policy Terms of Service
Copyright © 2021 SuccessFuel

WELCOME BACK!

Enter your username and password below to log in

Forget Your Username or Password?

Reset Password

Lost your password? Please enter your username or email address. You will receive a link to create a new password via email.

Log In

During your free trial, you can cancel at any time with a single click on your “Account” page.  It’s that easy.

Why do we need your credit card for a free trial?

We ask for your credit card to allow your subscription to continue should you decide to keep your membership beyond the free trial period.  This prevents any interruption of content access.

Your card will not be charged at any point during your 21 day free trial
and you may cancel at any time during your free trial.

preloader