Every so often, I get the question from clients regarding proper classification of employee vs. independent contractor. Part of the reason why these questions are constantly being asked is that the exact definition of independent contractors vs. employees is not set in stone. Interpretation of laws and principals can provide a guide to employers in defining the business relationship between themselves and the candidate.
As rule of thumb, I always use three sources when trying to answer these difficult questions. To define status of an independent contractor, I refer to common laws and principals adapted by federal government and the states, the Fair Labor Standards Act of 1938, and, finally, I take into account the decisions made by the courts. Especially in my home state of California, the third source of information gives me a road-map of what’s established as precedence from the courts in the state.
Common laws and principals adopted by IRS and many states define independent contractors primarily by the level of control the employer has over services, the product the independent contractors produce, whether or not the employer governs how the independent contractor will perform services and how he/she accomplishes such services.
Another factor to consider is compensation. If the person performing services is on an employer’s payroll and receives regularly paychecks, that person is considered an employee. An independent contractor would most likely receive payment for invoices furnished to the employer for services rendered.
Other factors to consider are: Degree of control over the worked performed and who exercises that control. Who provides supplies, materials and equipment to perform work? Is the work temporary or permanent? Is the work performed integral part of the business?
All these questions try to answer the difficult definition of control. When the hiring party controls the way work is performed and how the product is delivered, the relationship between the parties is employer/employee. Otherwise, if the person performing the services or delivering goods maintains his/her independence on how they perform work and deliver products, is his or her own boss, work is defined by a written contract and adheres to certain requirements, the relationship between parties is hiring party/independent contractor.
In conclusion, many factors will define whether a worker classifies as an independent contractor. In many cases, I suggest you look for some simple answers to steer you in the right direction: not relying on your organization as the sole source of income. Retaining a high degree of independence in delivering goods and services and performing work at their own pace are good giveaways. On the other hand, an employee is someone who does depend on the corporation as their single source of income is under the control of the corporation to perform his duties.
If you have any questions regarding proper classification of your employee status feel free to reach out to our staff for a consultation.