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How to Classify an Independent Contractor vs. an Employee

workers in an office spaceHow to classify an independent contractor vs. an employee is an increasingly important issue for businesses. Up to a third of the American workforce may be self-employed full- or part-time. A major question for these individuals and the companies for which they provide work is how many of them are, under the law, employees?

Why Classification of Workers Matters

With every employee comes costs, taxes, local, state, and federal rules, regulations, and statutes. You may be tempted to apply an “independent contractor” label to avoid all this expense and hassle. But that could subject you to far greater liability if the person, according to the law, is an employee. Because of a successful complaint to a government agency or the filing of a lawsuit, your business may be forced to pay:

  • Unpaid employment taxes
  • Back pay, which could include overtime pay
  • The value of employee benefits
  • Civil, and possibly criminal, penalties and interest if you don’t pay workers’ compensation premiums or if your unemployment tax reports are inaccurate
  • If the person is injured while working, without workers’ compensation insurance, you could be sued in a personal injury action. If you lack insurance for this type of claim, you could be ordered to pay compensation far greater than what would be paid under workers’ compensation.

If you need to pay these costs, whatever savings you gained by using the independent contractor label would be wiped out. Depending on how financially secure your company is, these costs could also severely impact your ability to operate. The bottom line: if your business is grappling with how to classify an independent contractor or an employee, contact our office so we can discuss the situation. We will advise you of the law and how it may be applied in your situation.

No ‘Hard and Fast’ Rule on the Difference Between an Independent Contractor vs. an Employee

This is a very fact-specific issue. A person working under certain conditions for one company may be an employee. With slightly different conditions, the worker could be an independent contractor elsewhere. The many local, state, and federal codes, rules, and regulations covering employees have differing definitions of who’s an employee.

There are many other variables that impact the final determination of whether a worker is an independent contractor or an employee. Among them:

  • A person who is an employee under one law may not be under another.
  • If the issue goes to court, there may also be different outcomes because judges view the issues differently.
  • The same complaint filed to a government agency investigated by different people may not have the same outcome.

Who Is an Independent Contractor? Who Is an Employee?

Generally, an independent contractor is a self-employed worker. The person is paid to perform a specific task or tasks. Payment is often based on finishing the work. Employees are hired and work on an on-going basis to do a variety of different but related tasks. The worker could be paid by the hour or on a salary basis.

An essential difference between an independent contractor vs. an employee is how much the person is supervised or controlled. The more potential control, the more likely the worker would be deemed an employee. If you …

  • Want a new roof, you may tell a contractor when you want the work done and what kind of shingles you prefer. You leave the details to the contractor who supplies the materials and tools. The contractor may be partially paid at the start of the project and paid the rest after the roof is done
  • Hire someone in a sales department, you may be very detailed in how the person interacts with prospects. You may dictate the language used. The person may need to wear clothes with your logo. Those in sales could have specific paperwork to fill out, meetings to attend, and goals that must be met. The person may qualify for benefits and be paid a salary and commission

Calling a person an “independent contractor” or “consultant” has practically no legal weight, even as part of a written contract. There’s nothing to stop them from seeking payment and benefits like an employee in the future.

If you’re thinking about hiring more help for your company and want to know if it can be done by an independent contractor, our team can help you determine what category the person falls into. Don’t hesitate to get legal assistance to ensure you categorize all workers correctly.

We Can Help You Work Out the Difference Between an Independent Contractor vs. an Employee

Employment laws are extremely complex. Misclassifying someone can be a very costly mistake. We will go over the duties and how the person would be managed. Once we get a complete understanding, we can advise you how to properly classify a worker. We can also aggressively defend your rights in court or before a government agency if you’re accused of misclassification of either an independent contractor or an employee.

The Seattle employment attorneys of Dickson Frohlich Phillips Burgess offer a wide range of services. We are seasoned professionals, with more than 100 years of combined experience serving clients of all types and sizes. Dickson Frohlich Phillips Burgess helps clients from small individually owned service businesses to large, complex corporations, and we can help you, too. Call us at 206-621-1110 today so you can consult with our business attorneys who can provide you the guidance you need.