One of the most misunderstood concepts in employment law is that of the independent contractor.
Some employers believe that simply changing employees into independent contractors by a written agreement will erase their liability for workers’ compensation and unemployment compensation claims, eliminate the need to collect taxes and get rid of other employee-related obligations.
Before you jump on the independent contractor bandwagon, remember: If challenged, many arrangements fail to meet legal tests. The more control you assert over so-called independent contractors, the more likely a court will call them employees.
Case in Point: Helpful Hands employed several drivers to transport patients for medical treatment. Then the company converted the drivers to independent contractors and paid them a percentage of the amount collected for each trip from insurance carriers.
The company required the drivers to maintain their own vehicles, buy insurance and cover all expenses. Drivers could theoretically refuse any assignment. In reality, no one did.
Two former drivers whose contracts the company terminated applied for unemployment benefits. They argued they had so little control over their workday that they couldn’t be considered independent contractors.
The court agreed, saying they were indeed employees and, therefore, eligible for unemployment compensation. (Baindurashvili, et al., v. Helping Hands, No. A12-0657, Court of Appeals of Minnesota, 2012)
Final note: Remember, different government agencies have different tests for who counts as an employee and who does not. For example, the IRS has one standard, the Department of Labor another. Before converting employees, consult an attorney experienced in wage-and-hour law.
If you classify any workers as “independent contractors”—or have plans to do so—now is the time to make sure you get that classification correct.
Should you have any additional questions on this topic, please call CyQuest today!
For questions or a free HR Assessment, call us at 404-761-6699 or fill out a contact form and we will follow up with you.
We provide top to bottom HR Consulting, as well as, Government Contracting training and education.