It has become fashionable for employers who want to cut down on various expenses and liabilities to say that they have “independent contractors” working for them rather than employees. Employers must be very, very careful with this. Employers must realize that just because they call worker an “independent contractor” does not make it so, and an independent contractor agreement will not, in and of itself, necessarily protect an employer who has improperly classified a worker. It could help, of course, but it is not conclusive. There are numerous factors that determine whether a worker is an employee or independent contractor. Among others, these include:
- The right to control the activities of the independent contractor. This is the most important single factor. The more control an employer has over a worker, the more likely that person is an employee rather than an independent contractor. Bear in mind, too, that we’re talking about the right to control, and not necessarily actual control.
- Who provides the instruments that the worker needs to complete his or her job? The more the employer provides, the more likely the worker is to be declared an employee.
- Who provides the place where the work will be done? If a worker is showing up to your business just about every day for a long time, it’s much more like the person is an employee.
- What costs does the worker have to carry?
- Does the worker bear the risk of bad checks?
- Does the worker pay state licensing fees?
- Does the worker buy his or her own supplies?
- Can the worker earn a profit above the value of the time he or she is putting in?
- Does the worker have highly specialized skills? The more skilled the worker is, the more likely he or she is to be seen as an independent contractor, although that’s not necessarily the case.
- Is the worker there on a long-term or short-term basis?
- Is the service that the worker providing ancillary to your business? For example, if you run an auto-repair shop, you can’t really argue that a mechanic’s work is ancillary to your business. It’s a stronger argument if, for example, you hire someone who clean your windows.
- How do payments work? Are they fixed? If so, more likely to be an employee? Or are they per job? If so, more likely to be an independent contractor.
- Does the person get benefits? If so, much more likely to be an employee.
- How do the parties involved – worker and employee – see the relationship?
- What is the trade or industry custom?
Bear in mind that abuse in this field is quite common – and agencies like the IRS and the Colorado Department of Labor are well-aware that employers often classify employees as independent contractors in an effort to avoid tax payments and payments for worker compensation insurance. IRS consequences against employers who have independent contractors who are actually employees are severe. Moreover, the general rule in Colorado law is that a person performing services for another is an employee, and the burden of proof is on the party asserting that a person is an independent contractor to actually prove it.
If, in fact, a worker is an independent contractor rather than employee, there are some benefits to the employer. One primary benefit is that independent contractors generally are ineligible to receive unemployment benefits. Another benefit is that independent contractors are generally ineligible from receiving worker compensation.