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Those who say it cannot be done, should not interrupt those doing it.
— Chinese Proverb
 
 

Independent Contractors: Not a good business model

You can call a venus fly trap a flower, but it’s still going to kill something

Hiring an independent contractor rather than an employee is so much better for the bottom line.  You don’t have to pay for social security taxes, unemployment, benefits and other perks.  And, you can pay them similarly as employees who do the same work. You set their hours and can make them work overtime without paying time and a half. Why doesn’t everyone hire independent contractors rather than employees?

STOP!

Hiring independent contractors can be a serious issue, potentially costing a business far more than hiring an employee in the first place. Just because someone agrees verbally or in writing that they are an independent contractor, doesn’t necessarily make it so.  You can call a venus fly trap a flower, but it’s still going to kill something.

Although the IRS sets forth a 20-factor test to determine whether an independent contractor is an employee, and other state and federal agencies have their own law and tests, here is what you need to know to stay out of the trap:

Behavioral Control: When you hire a plumber, you don’t show him how to fix your broken drainage line, make him arrive at a specific time, dictate how long you want him to work on the project and provide the wrenches and piping needed for the job.  No, the plumber arrives when it’s convenient for him, takes as long as he needs to finish the job, brings his own tools and equipment and is capable of doing the job without any ‘help’. True independent contractors are not subject to control over their performance and the way they perform the work.  

Financial Control: A painter shows up on the job having put significant financial resources into the tools he uses to perform his services.  He has an investment in ladders, brushes, rollers, vehicles and other things. He gives you an estimate and if the job takes longer, you don’t have to pay extra.  The painter has significant financial investment in the work and can earn a profit or suffer a loss from performing the work.

Type of Relationship: If you had a janitorial business, would you hire an independent contractor to clean your offices?  Probably not.  Therefore, anyone you hire that does substantially the same work as your other employees may not be an independent contractor. Additionally, the length of the relationship is important.  Will the work be finished in a few months or is this a long-term relationship?  If the independent contractor is doing work for you exclusively, and has no other clients, consider that a red flag.

If the DOL comes knocking at your door due to a suspected misclassification, they can look at all employees and independent contractors over the course of three years.  An investigation and its potential subsequent fines and back wages can be a significant cost as well as a public relations nightmare.

This should not prevent you from hiring an independent contractor because there are many circumstances where it is appropriate.  For instance, companies performing skilled professional services are a great asset.  However, when you hire an individual as an independent contractor, you should take stock of the specific circumstances under which they will work.  Workplace FactFinders can help you navigate the myriad of regulations and law to determine whether your independent contractor is really an employee.  It is best to start this process before anyone is hired so you are making the right decision from the start. For help, please contact Cynthia Fenton at Workplace FactFinders, 844-321-9733, Ext. 700 or email her at cfenton@workplacefactfinders.com.

 The information contained in this article is not legal advice and should not be relied upon as such.  Employers should consult their attorneys for legal advice.

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