Independent Contractors – Are They Misclassified Employees
The misclassified employees of an independent contractor can be fixed if necessary. Who is an independent contractor under the Workers Comp rules? Several states including California, New Jersey, New York, and quite a few other states have begun a heavy investigation into whether an Independent Contractor is an employee or not.
We have helped numerous companies correct their Workers Comp classification codes. I thought that it would be best to use the IRS rules on how to classify employees.
People such as lawyers, contractors, subcontractors and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public, are generally not employees. However, whether such people are employees or independent contractors depends on the facts in each case.
The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result.
Control is the key here. If a contractor has total control over the work including work hours per day, the contractor/sub-contractor “arms-length” agreement becomes rather thin for tax and Workers Compensation purposes.
Example: Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. She is to receive $1,280 every 2 weeks for the next 10 weeks. This is not considered payment by the hour. Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. She also performs additional electrical installations under contracts with other companies that she obtained through advertisements. Vera is an independent contractor.
Check back tomorrow for more on how the IRS classifies independent contractors.