Beware Of The Independent Contractor
December, 2003
There is often a benefit to both employer and potential employee in designating the individual as an independent contractor. The employer may eliminate paperwork and the employee does not have withholding. However, employers need to be cautious about characterizing someone as an "independent contractor."
The penalties are steep. One federal judge in this District of Oregon recently ruled that a misclassified employee was retroactively entitled to the benefits of a collective bargaining agreement. Even if an individual wants to be classified as an independent contractor, the burden remains on the employer to make that determination. In determining employment status under the federal Fair Labor Standards Act ("FLSA"), the court uses an "economic realities test." Courts have identified a number of factors for distinguishing employees from independent contractors under the FLSA. Those factors include, but are not limited to:
The degree of the alleged employer's right to control the manner in which the work is to be performed.
The right to control does not require continuous monitoring of employees. Even if it is exercised only occasionally, it can destroy the independent contractor relationship.
The alleged employee's opportunity for profit or loss depending on his/her management skill.
Does the alleged employee bid for the job as a whole? Does the individual control advertising to others? Does the alleged employee work for other employers? "Yes" answers to these questions weigh in favor of independent contractor status.
The alleged employee's investment in equipment or materials required for the task or the employment of helpers.
Capital investment and employment of helpers weigh in favor of independent contractor status.
Whether the service rendered requires a special skill.
Special skills used in an independent way, can weigh in favor of independent contractor status.
The degree of permanence of the relationship.
A working relationship, which either party can end at any time, will look more like an employer-employee relationship.
Whether the service rendered is an integral part of the alleged employer's business.
If services rendered are similar to those performed by employees, employee status is more likely than independent contractor status.
The above factors above are just some of those looked at by courts in determining independent contractor or employee status. If you need assistance determining status, please contact legal counsel.