Steele Sturm, P.L.L.C.

Website Links

Description

Misclassification of Employees - The "Independent Contractor" Versus "Employee" In light of recent economic shortfalls, employers are looking to reduce costs to improve their bottom-lines. One of the primary ways that most businesses cut costs is by hiring "independent contractors," eliminating the need to provide employee benefits and to avoid payroll taxes. However, such categorization of hired help may land the employer in a legal mess. 1. The Good and the Ugly a. The Good When you hire someone as an "independent contractor," your goal is to avoid all of the responsibilities that come with having a regular "employee." These include: workers' compensation insurance, state employment tax, wage withholding, pension plans, health insurance, vacation, sick pay and other fringe benefits. If you do it right, employers also avoid having to pay for office space and equipment for independent contractors because they will work in their own space. Employers may also experience greater efficiency because the independent contractor is an expert that needs little input to cause a profit.And, if the need for the contractor decreases, the employer can just cease the relationship. Finally, employers reduce their exposure to lawsuits by hiring independent contractors who are not protected by the same state and federal laws as employees. Unlike employees, independent contractors are not protected by wage and hour laws under the FLSA or discrimination and retaliation laws under Title VII of the Civil Rights Act of 1964, as amended. See 29 U.S.C. § § 203, 206; 42 U.S.C. § § 2000e, 2000e-2. Therefore, by hiring independent contractors, employers reduce the risk of claims against them for violating such rights that are exclusive to employees. b. The Ugly While there are many benefits to hiring independent contractors, in a true independent contractor situation, there are significant drawbacks to consider as well. Employers will have less control over their workers because independent contractors enjoy a certain level of autonomy in deciding how best to complete the task for which they are hired. Independent contractors have the ultimate control over whether they will work for an employer in a given situation and may even work for one of the employers' competitors. There is no automatic guarantee protecting an employer's confidential information when they hire an independent contractor. However, requiring independent contractors to sign a non-disclosure agreement may ensure penalties will be imposed upon them if they violate the agreement. Employers also do not have the freedom to fire an independent contractor for any reason at any time as they do with employees. Rather, an employer's right to terminate an independent contractor's services is limited by the terms of the written agreement. A violation of the agreement could result in the employer facing liability damages. Moreover, because independent contractors are not covered by worker's compensation insurance, if they are injured on the job, they may be able to sue the employer and recover damages.

Products & services

Similar companies nearby