Hiring workers as independent contractors may provide an alternative to hiring them as employees, but care must be taken in doing so. If you treat workers as independent contractors when they should be classified as employees, you may face stiff penalties for violating wage and hour laws and other laws and regulations.
The distinction between employees and independent contractors is often blurry and will depend on the particular circumstances. Generally, an independent contractor is hired to accomplish a particular result, but uses his or her own means of accomplishing that result. By contrast, an employee typically uses the employer’s means performing assigned tasks. Also, employer exercises little, if any, control over how the contractor conducts his or her activities. An employer exercises substantial degrees of control over how employees perform their tasks.
The lack of the right to control how the work is done distinguishes between an employee and an independent contractor. For the worker to be an employee, the employer must control not just the result he or she wants, but also the means and details of how it is to be accomplished. For the relationship of to be one of employer and employee, the employer must have the right to choose, control, and, for misconduct, discharge the employee.
The following are some of the questions that must be answered in deciding whether a person is an independent contractor or an employee. No single one of these will be the determinative factor. All must be considered as a whole, along with any other aspects of the relationship that might affect the determination.
Independent contractors are responsible for paying their own taxes, whereas the employer must expend time and effort in withholding income taxes and also is obligated to pay FICA taxes for employees. Other benefits will be owed to employees that would not be owed to independent contractors.
An employer is liable to persons injured by the acts or omissions of his or her employees but is not generally liable for the harm caused by the acts or omissions of an independent contractor. On the other hand, the employer may be liable under some circumstances, depending on the nature of the activity and the duties that the law imposes on employers for certain kinds of activities, particularly those that are regarded as inherently dangerous.
To be sure of your rights and obligations, consult with an attorney before you hire someone.