We get a lot of questions from employers about independent contractor status. Best case, the questions come before the employer classifies a worker. All too often, however, the questions come later, when the employer may already have put itself at risk. Given recent IRS and Department of Labor initiatives, we thought it would be helpful to provide typical questions, and our typical answers, here.
Q: Sometimes applicants, and even our current workers, ask to be independent contractors. We like to be flexible and accommodating. Is there a problem with having a mix of employees and independent contractors in our workforce?
A: It depends, but if people are performing the same work under the same conditions, you can’t classify some of them as independent contractors and some as employees.
Q: Why not? These workers are asking for this classification, so what’s the problem?
A: What a worker wants, or what an organization chooses to call its workers, doesn’t determine the legal status of the worker or the legal responsibilities of the organization. Government agencies, including the IRS, the Department of Labor, state tax and labor authorities, and state unemployment and workers compensation departments, determine worker status based on their own tests – and they have a great interest in doing so, because worker status affects the government’s ability to collect revenue. So the problem is that your company’s independent contractors may not pass the tests applied to them by the government, and your company may end up owing back taxes, unemployment contributions, workers compensation premiums, and other penalties even if the worker doesn’t complain.
Q: Okay, so we shouldn’t classify someone as an independent contractor unless they qualify as one based on government standards. What are those standards?
A: They vary somewhat from one government agency to the next, but generally, what matters is:
- Control. Who controls how the worker’s job gets done –
the timing, order, methods, location? The more the organization controls the
manner, means, and timing of the work, the more likely it is that the worker is
- Equipment. Does the worker use the organization’s
equipment to do the work, or his or her own equipment? If the worker uses the organization’s
equipment, it’s more likely that the worker is an employee.
- Exclusivity. Does the worker work for other entities, or
just for your organization? Do you
prohibit your workers from working for others?
A worker who only works for one organization is more likely to be an
- Method of
compensation. How is the worker
paid? By the task or job, or by the hour, week or month? Workers paid by the task or job are more
likely to be independent contractors, especially if they submit invoices for
- Classification of similarly situated workers. As noted above, workers doing the same job should not be classified differently.
Check out the IRS fact sheet and Department of Labor fact sheet for good general guidance on this topic.
Q: One of our employees is trying to avoid garnishment and has asked to be treated as an independent contractor so that she can protect her earnings. This is a great employee and we’d like to help her. Can we get in trouble if we do?
A: Yes. This is dangerous territory. In addition to all the considerations noted above, helping a worker evade a financial obligation may violate state or federal law. Don’t go along with a request like this without checking with your lawyer.
Q: We need temporary workers. Can we use independent contractors we get through a staffing agency?
A: Yes, but you run the same risks of misclassification that are discussed above. If the workers are employees of the staffing agency, your risk may be less, but your organization and the staffing agency can both be liable for misclassification, and may be determined to be joint employers.