The decision to classify someone as an Independent Contractor rather than an employee is one that carries significant risk and should not be carried out lightly. The exposure includes back taxes, missed meal and rest breaks, potential unpaid wages, and penalties if an agency determines a person was misclassified.
Some of our clients are surprised when they come to us for a specific corporate question and suddenly find the conversation turning to their personnel structure when they tell us they have “independent contractors.” When we start delving in to the facts of situation, often times we will recommend someone’s status be changed to that of an employee. A client may say, “but I have an Independent Contractor agreement…” That is when we have to tell them having an agreement is only a small factor in the overall determination of status.
Many business owners are unaware of the multiple agencies that have some overlapping, but also some differing, factors as to whether someone should be an employee or an Independent Contractor. To start with, there is the common law, or case law, factors, the IRS, and EDD, which all has factors that are weighed in making a determination.
If you are thinking about designating someone as an independent contractor it is recommended you consult an attorney familiar with employment law so your organization does not make a critical misstep.