Misclassification of Workers FAQs

Independent contractors are workers with economic independence who are in business for themselves.  Most workers are employees. The general rule is that an individual is an independent contractor only if the payer has the right to control or direct the result of the work and not what will be done or how it will be done.  Inde­pendent contractors are self-employed and generally offer their services to the general public.  (This is why the Research Foundation requests a list of recent clients or samples of advertising when an Independent Contractor Agreement is requested.)  Whether an individual is an inde­pendent contractor or an employee depends on the facts in each case. This determination is made by the Office of Legal Affairs after a full review of the ICA request’s supporting documentation.  An individual must be considered an employee unless the facts warrant the individual’s classification as an independent contractor under the applicable laws.

Facts that provide evidence of the degree of control and independence fall into three categories:

Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?

Financial: Are the business aspects of the worker’s job controlled by the payer? (These include things like how worker is paid, whether expenses are reimbursed, who provides tools or supplies, and so on.)

Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)?  Will the relationship continue and is the work performed a key aspect of the business?

There are no set number of factors that makes the worker an employee or an inde­pend­ent contractor, and no one factor stands alone in making that determination. Factors that are relevant in one situation may not be relevant in another. The key is to look at the entire rela­tionship, consider the degree or extent of the right to direct and control and, finally, to docu­ment each of the factors used in coming up with the determination.

Certain factors are immaterial in determining the existence of an employment relationship. The fact that a worker has signed an agreement stating that the worker is an independent contractor is not controlling because what is determinative is the reality of the working relationship, not the label given to the relationship in an agreement; similarly, the fact that the worker has incorpo­rated a business or is licensed by a state or local government agency has little bearing on deter­mining the existence of an employment relationship.  Nor is employee status determined by the time or method of payment.

There are important legal differences between an independent contractor and an employee. For the employee, the company withholds income tax, Social Security, and Medicare from wages paid. For the independent contractor, the company does not withhold those amounts. The earnings of a person working as an independent contractor are subject to self-employment tax.

The PI can if the worker meets the strict requirements for independent contractors. The laws do not allow someone who pays to have work performed elect whether a worker will be an employee or an independent contractor.

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