For many businesses, independent contractors serve as a common source of flexible labor resources. The independent contractor, or “1099 employee,” designation may only be assigned to workers truly independent of the business that has hired their services.
However, many businesses fail to evaluate whether their independent contractors are properly classified. Misclassification of workers can lead to serious consequences from taxation and labor authorities. Determining whether a worker is an independent contractor is fact-sensitive and one of the most frequent labor issues investigated by state and federal government agencies. These agencies may issue fines, penalties, or even jail time for improper classifications of workers.
To assist businesses in determining whether their workers qualify as “independent contractors”, state and federal agencies define a series of factors that they consider when evaluating whether a worker is properly classified. Understanding these factors is crucial for businesses that hire independent contractors.
While there are many more, one of the most important factors frequently considered is the level of control and direction a business has over the performance of a worker. Is the business dictating when the worker arrives and leaves during the day; the timing of their lunch and other breaks; or, how they perform their job? All of those are key indicators that the worker is not an independent contractor, but rather an employee.
Some other key considerations include whether the worker provides their own tools and equipment; whether they have similar arrangements with other companies; whether they regularly put themselves out as independent contractors to the public, and whether the contractor is performing work outside your usual course of business.
These are only a few of the factors that government agencies will consider when evaluating whether a worker is appropriately classified as an independent contractor. No single factor is determinative of designation, so it is important to consider all factors and weigh them appropriately.
At Ogwyn Bonaventure, we are able to assist businesses in evaluating their current independent contractor designations. We work with clients in evaluating whether workers are properly classified and can help structure appropriate independent contractor relationships. Give us a call!