Misclassifying an employee as an independent contractor can be very costly to an employer.  Especially if the employee challenges their status during an unemployment hearing or worker's compensation claim.  Once it has been determined that the employee was misclassified the proverbial can of worms is open and they now have the information necessary to seek back pay and benefits for the time they were misclassified at the company.
 
There are three major areas that differentiate an employee from an independent contractor.  First is behavioral control.  If the employer tells the person who, what, where, when, why and how than it is unlikely that they are an independent contractor.  In a true independent contractor relationship the employer may define the outcome, i.e., the furnace is repaired, but how they actually go about getting there, when they work, tools they use, are all at the discretion of the independent contractor.
 
Secondly is financial control.  How the worker is paid, whether or not they can realize profit or losses, if they are able to work with other clients, etc., are all determining factors in the independent contractor versus employee dilemma.
 
The third factor is the nature of the relationship.  This refers to things like if the worker is provided benefits by the company, when and how the relationship will terminate, and whether or not the services provided by the person are essential to company operations.
 
To preserve the independent contractor status the employer does not want to try and dictate disciplinary action, provide performance reviews, allow them to participate in company functions, provide them with business cards, email addresses, name badges or office space.  All of these actions would typically signify that they are an employee rather than an independent contractor.
 
One typical situation that occurs is when an employee retires or resigns from their positions and agrees to stay on as an "independent contractor" until the company fills the position.  However, the employee is not truly an independent contractor unless the parameters of their employment change significantly. 
 
For tax purposes the IRS will determine if a person is considered an independent contractor or an employee.  Check out their website at www.irs.gov to fill out the appropriate forms.
 
If you have questions or concerns about whether or not your employees are classified correctly please contact Sara Kepley at skepley@provlauellc.com or 620-960-1694.