"What?!? But he signed an independent contractor agreement!" Sound familiar? We hear it often when a claim for payroll taxes, unemployment insurance or workers' compensation benefits is filed by/on behalf of someone who works/worked for one of our clients.
Companies all too often rely on the existence of an independent contractor agreement to shield them from potential tax or other liability. Such a contract will be of little comfort to you if, after an individual files for an employment-related benefit, he is legally deemed to be an employee and you are, therefore, deemed to be legally responsible for payroll taxes (e.g., FICA, federal income tax),workers comp, UI or pension benefits, to name a few.
Wage and hour matters can also turn on whether a worker is an employee or independent contractor. There are other significant, if less obvious, potential problems such as liability for property damage, physical injury or financial harm to a third party caused by your worker while performing services on your behalf . Oh, and if the person whose services you retained turns out to be an employee, that whole I-9 Employment Eligibility Verification matter may also require some attention.
The Internal Revenue Service cares for fairly obvious reasons and the State of Florida cares for many of the same reasons. You should care because misclassifying a worker as an independent contractor may result in very serious, if not catastrophic, financial consequences. Are we trying to scare you? Yes, but in a good way. Are we exaggerating? We don't think so.
Misclassification is a mistake your organization simply can not afford to make and one it can, with a little effort, avoid. Here in Miami where employment issues arise frequently, you may wish to have your employment scenario reviewed by a competent employment attorney.
Here are some things you should consider as you evaluate not only the people you "hire" from this day forward but also the work being performed by those you currently pay to ensure that you are classifying all individuals correctly:
How much direction and control over the worker and the manner in which the work is performed are you entitled to exercise? Not how much you actually do exercise, but how much you can.
Is the work performed under your supervision or is the individual left to their own devices, so to speak? And, speaking of devices, who provides such things as tools, instrumentalities, business cards, workplace (e.g., company owned PC or personal laptop)?
Is the worker responsible for the expenses incurred?
If you prevent the worker from hiring assistants or pay them if he does, you may be undermining the argument that the individual is an independent contractor. Is the individual engaged in a distinct business or occupation, one in which he or she can perform work for others that is the same or similar to that performed for you?
As evidence of this, for example, the IRS may request for the Federal Employment Identification Number (FEIN) or proof of a business bank account.
How much skill is required to do the work?
Duration of work/project for which the individual is "employed." Is there a scheduled end-date or measure by which the work will be considered completed?
Is the person paid on an hourly basis or by the project, either in lump sum or at various stages according to a schedule of deliverables?
The answers to these questions might help you determine whether your workers are independent contractors or employees. The list is not, however, exhaustive and seeking the advice of an employment attorney here in Miami may be an investment well worth making.