Employer Law Newsletter
Hiring Independent Contractors
Independent contractors can help infuse the workplace with new ideas and specialty talents and help employers meet company goals. There are many advantages to hiring an independent contractor over a new employee.
It generally saves employers money to hire independent contractors rather than new employees. Employers do not have to invest resources into training independent contractors. They also do not have to provide independent contractors with benefits, such as paid time off, health insurance, disability and retirement savings. They do not have to pay worker's compensation insurance or unemployment insurance for independent contractors, or Social Security and Medicare taxes.
Additionally, independent contractors do not receive protections under federal employment laws. Since they do not meet the definition of an employee, they are not entitled to unpaid leave under the Family and Medical Leave Act, minimum wage and overtime compensation under the Fair Labor Standards Act, reasonable accommodations under the Americans with Disabilities Act or protection from discrimination in the workplace under Title VII and other federal anti-discrimination laws, to name just a few.
Hiring independent contractors also saves company resources. Employers do not provide office supplies or space to independent contractors, nor are they responsible for reimbursing business expenses.
However, employers are bound by the terms of any employment contract they have with independent contractors. These contracts generally stipulate the duration of the employment relationship, how the product will be delivered and under what conditions the employment relationship may be terminated. Employers also may want to include provisions defining who owns the copyright and any other intellectual property rights to the final work product produced by the independent contractor.
It is important for employers to correctly classify individuals as independent contractors and to treat them as such. There are stiff state and federal penalties for misclassifying employees as independent contractors. Employers may be required to pay back all of the taxes that should have been withheld from the employee's check as well as any benefits that the individual would have been eligible for.
Employers should realize that just because they have a written contract stating an individual is an independent contractor does not by itself insulate the employer from liability for misclassifying an employee. In determining whether or not someone is an independent contractor or an employee, the court will look to the totality of the circumstances of the employment relationship. The most important factor the court will consider is the extent of control the employer exercises over the individual and the work. Some of the factors the court will look at to determine this level of control are the form of payment, the duration of the project and whether the employer or the individual provides the supplies to complete the work.
For more information on hiring independent contractors, drafting employment contracts or other employment law matters, contact an employment law attorney.
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