Employee or Independent Contractor?Written by Richard Newman
July 6, 2012 # 9:08 am # Legal Challenges # One Comment
Hiring employees involves both benefits and burdens.
A fundamental benefit is that you can exercise a certain degree of control over employees in furtherance of your business goals. However, an employer is responsible for paying wages, withholding taxes, providing benefits, and may be liable for an employee’s negligence during and within the scope of employment. Employers must also be mindful of state and federal laws regarding discrimination and termination.
Conversely, independent contractors do a job for a set price and may work for multiple business entities, simultaneously. It is axiomatic that with independent contractors, an employer cannot control them with detailed direction and no tort or contract liabilities are typically involved.
It is often difficult to unequivocally state which category a particular worker or class of workers should go and worker-status controversies are bound to arise. For example, federal and state employment law liabilities for employees are much greater than for independent contractors. As a result, there is a natural tendency for businesses to treat workers as independent contractors. Much of an Employment Law Attorney’s task is in assessing what is legitimate and what is not.
With an independent contractor an employer must pay gross pay with no withholding. On the other hand, an employer must withhold and remit federal, state, and sometimes even local taxes for employees. The characterization issue also arises in the context of third-party allegations of vicarious liability and litigation between private parties.
For example, the status of a worker may be pivotal in analyzing a company’s potential liability for an employee’s actions. If a delivery driver is your employee when the driver negligently strikes a pedestrian, an employer may be liable, with certain exceptions governing scope of employment. If the driver is a true independent contractor, the tort liability is the driver’s, not the company’s.
Litigation also arises in the context of workers who are contractually designated as independent contractors suing employers expressly seeking reclassification. The motivation can be employee benefits, non-discrimination or employment rights, and/or wage and hour protections.
It is critical to note that a written employment contract that identifies a worker as an independent contractor may not necessarily be honored by a court. As a general rule, the objective relationship between a worker and company will control the classification issue.
Contractual designation is certainly not, in and of itself, dispositive. Rather, courts will assess the totality of the facts, circumstances, and conduct between the worker and employer. Courts will not allow an employer to call a worker an independent contractor while subjecting the worker to the control it exercises upon a normal employee.
As worker status litigation continues to evolve, it is critical that companies consider the big picture early on in order to avoid a battle involving re-characterization. While the temptation may exist to characterize a worker as an independent contractor, it may create a domino effect and cost more in the long run. Maintain realistic expectations. Consult with competent legal counsel to ensure that contract language and actual practice are consistent.
Oftentimes, avoiding a dispute is tantamount to winning one.
Disclaimer: This article is intended for informational purposes only and does not constitute legal advice. Consult with a Business and Employment Law Attorney for further assistance.