Don’t Misclassify Employees As Independent Contractors

Please enjoy this guest post by Scott Callen and Jennifer Neumann from Foley & Lardner LLP

While classifying workers as independent contractors can result in substantial savings for an employer, the potential penalties for misclassifying a worker as an independent contractor can be significant. There are various legal standards, but the key factor in determining proper worker classification is the right to control the worker.

For an employee, an employer generally has the right to control both what the employee will do and how it will be done. However, no one factor alone usually proves or disproves a proper independent contractor classification. Companies must evaluate federal and state laws to properly classify a worker as an independent contractor and legal guidance is strongly recommended, but the examples below provide a basic primer on independent contractor classification.

>>> Independent contractors are usually hired to perform a discrete project during a set period of time with a starting and ending date. A painting contractor, for example, is hired to complete one discrete project, i.e., to paint a specific room a specific color by a certain date. Unlike most employment relationships, independent contractors are not typically hired to continuously perform services for an indefinite period of time.

>>> Independent contractors have significant freedom or “control” to determine what materials and equipment are used during the project, and the methods and techniques to achieve the final work product. To illustrate, a painting contractor is not typically instructed on the paint brushes to use, what wall to paint first, or the painting techniques or methods. Conversely, in many employment relationships, employees are required to adhere to company policies, protocols, procedures, methods or manuals as to how to achieve the final work product.

>>> Independent contractors usually supply their own materials, pay for many, if not, all of their own expenses, and are not typically trained by the company. Painting contractors, for example, supply the ladders and paint brushes to complete the project, pay for phone service and do not typically charge for travel expenses to go to the paint store. Employees, on the other hand, are usually provided company materials or equipment to complete their job.

>>> Independent contractors have freedom to work for other customers or employers during and after the project. Alternatively, employees usually work for one employer and may have restrictions on their employment opportunities with other companies during and after the employment relationship.

>>> Independent contractors usually have a formal agreement in place describing the independent contractor relationship, setting a price/fee for the final product, and the terms of the project. Beware, however, as a contract stating that a worker is an independent contractor will not, alone, establish independent contractor status. Alternatively, employees oftentimes are employed “at-will” and are governed by company policies and procedures setting forth the terms and conditions of employment.

Make sure to review your company’s policies, practices, and agreements regarding this issue. Of particular concern are building and construction firms who inadvertently misclassify employees as independent contractors often.

What questions do you have about classifying workers?

Scott Callen and Jennifer Neumann are both senior counsel from Foley & Lardner LLP’s national Labor & Employment Practice. You can find out more at www.foley.com