Classification of individuals hired to perform work is one of the tasks employers often do without full knowledge of the criteria. By misclassifying employees, employers can be held liable for back wages and overtime pay, employment taxes, unemployment and workers’ compensation insurance premiums and participation rights in employee benefit plans.
Although there are different tests various courts and government agencies have used to classify employees, it is important that employers focus on the economic reality of the working situation. It is best to recognize if the worker will act more like a traditional employee or similar to a business with an existence independent of the employer. Listed below are common factors that can help an employer make such a determination:
- The extent to which the services rendered are an integral part of the principal’s business;
- The permanency of the relationship;
- The amount of the alleged contractor’s investment in facilities and equipment;
- The nature and degree of control by the principal;
- The alleged contractor’s opportunities for profit and loss;
- The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor; and
- The degree of independent business organization and operation.
Counsel can provide a comprehensive independent contractor agreement for employees providing services to your company. Although not absolute, such an agreement provides evidence of the type of relationship that exists between the employee and the employer.