Time and time again business fall into the trap of believing they have an independent contractor providing work or services for them when, really, they have an employee. Getting that determination wrong can have far reaching consequences in many areas, whether it be lack of withholding taxes, a requirement to bear the burden of unemployment benefits, unknown exposure to discrimination charges and wrongful termination cases, or consequences in many other areas that arise from an employer/employee relationship.
For whatever reason, business owners often believe that all they need to ensure the relationship is one of an independent contractor is a signed agreement. While that is a good, and sometimes necessary first step, it does not go far enough. Most states examine how the relationship actually plays out and apply a number of factors to make a determination.
The most important factor in almost every state is “control.” Who controls the work? Does the putative employer require the putative employee to be certain places at certain times to perform certain tasks? Does the putative employer or putative employee decide how and when the work is to be done? If it appears that the putative employer controls most aspects of the relationship, it is much more likely that there is an employer/employee relationship.
Other relevant questions include: who provides the tools to ensure the work can be completed? Is the putative employee paid by the hour or by the project? Does the putative employee have its own company that provides services or are the services integrated into the putative employer’s business? Does the putative employee provide services for other companies? Is the work performed on the putative employer’s site or elsewhere? Can the putative employee quit without ramifications or is there some sort of contractual liability for termination of the relationship?
There are many other factors that weigh in to the analysis. But with the ramifications being so far-reaching, it is worth a business owner’s time and effort to make sure the relationship is set up right.