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Employment, Independent Contractors, Contracts

Independent Contractor or Employee? How to Protect Your Company from Claims.

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Risks of Independent Contractor being Found an Employee of Your Company

Here are some of the potential risks you face if your company is found to have wrongly classified a worker as an independent contractor as opposed to an  employee:

1. Penalties, liquidated damages.
2. Wage and Hour Claims—minimum wage, overtime, penalties and liquidated damages
3. EEOC/discrimination claims
4. Workers Compensation/Unemployment/Short term disability
5. Tax liability--federal and state.
6. Immigration—failure to verify identity and unauthorized employment of foreign nationals.
7. Audit by government agency.
8. Fines and Criminal sanctions.
9. Attorneys  fees (yours and possibly those of successful claimants).


List of Ways to Protect Company from Claims of Employment by Contract Workers/Independent Contractors

Whether it's the IRS list of 20 factors determining employee status or the State Department of Labor rules for your company in the state you are located in or the state where you have employees or contract workers or the federal  Fair Labor Standards Act, the rules and factors are complex and confusing.  It doesn't help that many court decisions say the finding of employee status depends on the individual facts of the case. However, the following actions may help your company avoid or minimize such claims:

1. Written contract—it helps establish independent contractor status. Without it, you don’t stand a chance.
2. Specify the result not the process or method. You can specify a company contact to make sure milestones being met and project isn’t off the rails. Don’t give employment reviews.
3. Don’t dictate the time and dates independent contractors must show up at company.
4. Degree of supervision determines employment status. Assigning a supervisor or direct manager the contractor must report to is not a good idea. See #2.
5. Length of service. If worker has been there for one or more years, more likelihood he/she will be found to be an employee. See #6 for mitigating factors.
6. Unique work and specialization reinforce independent contractor status. If work is common to both employees and independent contractors, there’s a higher likelihood of employee finding.
7. Treat your independent contractor as vendor/supplier. Assigning desk, email, business cards, badges and other employee perquisites to independent contractor makes them appear to be an employee.
8. No employee benefits should be provided to independent contractors, e.g. sick leave, holiday pay. They pay for insurance, disability, retirement, etc.
9. Contractor should supply his/her own tools, equipment at own cost and maintain.
10. If independent contractors need help, they should hire subcontractors. If your employees report to the contractor and/or work is integral to company, contractor may be deemed employee.


If you have independent contractor issues, call or email us for help.

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