Understanding the distinction between employees and independent contractors is crucial for both businesses and workers to ensure compliance with legal standards and to avoid potential penalties. Here's a concise guide on how to use the provided information:
Employees: Employees: When hiring, consider if the role requires specific duties performed under the company's control regarding how, when, and where the work is done. This suggests an employee relationship.
• Engagement: Hired by a company to perform specific duties.
• Control: The company controls how, when, and where they work.
• Payment: Usually receive a regular wage or salary.
• Benefits: Often entitled to employment benefits (e.g., health insurance, retirement plans).
• Taxes: Taxes are withheld by the employer.
• Equipment: Typically provided by the employer.
• Duration: Often have an ongoing relationship with the employer.
Independent Contractors: If the role involves completing a specific project with freedom over the work process, this points towards an independent contractor.
• Engagement: Hired to complete a specific project or task.
• Control: Have more freedom over how to complete the work.
• Payment: Paid per project or on a freelance basis.
• Benefits: Not entitled to employment benefits from the hiring entity.
• Taxes: Responsible for their own taxes and insurance.
• Equipment: Usually use their own tools and equipment.
• Duration: Work relationship is typically temporary or project-based.
Key Tests for Determination
• ABC Test: To be considered an independent contractor, must meet all three criteria:
– Free from the company's control in performing work.
– Performs work outside the usual course of the company's business.
– Engaged in an independently established trade, occupation, or business
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• Borello Test: Focuses on the company's control over work details and other factors like:
– Whether the work performed is part of the company's regular business.
– The skill required for the work.
– The worker's investment in equipment or materials
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Additional Factors for Determination
· Distinct Occupation or Business: If the worker is engaged in a profession or business distinct from that of the alleged employer, this may indicate independent contractor status.
· Supervision: The extent to which the work is usually done under the employer's direction or without supervision can affect the classification. Work done without the need for supervision suggests independent contractor status.
· Skill Required: The level of skill required for the work can indicate an independent contractor relationship if specialized skills are necessary that the employer does not provide.
· Tools and Equipment: Whether the worker or the employer provides the necessary tools, equipment, and workplace. Providing one's own tools and place of work is characteristic of an independent contractor.
· Length of Service: The duration for which services are to be performed. A shorter, defined period may indicate an independent contractor relationship, whereas ongoing work suggests employment.
· Payment Method: Payment by the job suggests independent contractor status, while payment by time (hourly, weekly, etc.) suggests an employee relationship.
· Part of Regular Business: If the work performed is part of the regular business of the alleged employer, this tends to indicate an employee relationship.
· Perception of Relationship: Whether the parties believe and act as if they are creating an employer-employee relationship. This belief, while not determinative on its own, can influence the overall assessment.
Important Considerations
• Misclassification: Incorrectly identifying an employee as an independent contractor can lead to legal and financial penalties.
• Agreements: Clear contracts defining the relationship and expectations can help avoid misclassification.
Questions? Be sure to contact our office.