Let’s face it, hiring employees can be expensive; not just the cost of the services provided, but all of the administration that surrounds it, like payroll taxes and unemployment taxes. Now, at least in Colorado, add to that a state assessed fine beginning July 1, 2009 for all situations where the Division of Employment finds that an employer “with willful disregard of the law, misclassified employees” as independent contractors. And the fines are steep: $5,000 for each misclassified employee the first time, and $25,000 for each misclassified employee for the second and subsequent violations. OUCH!
In determining whether an independent contractor relationship exists, the sincle most important test is the amount of control maintained by the employer. If the employer controls the contractor then generally an employment relationship exists. In order to substantiate a contractor relationship, we suggest documenting the specific reasons why each independent contractor is not being classified as an employee, focusing on the lack of employer control.
July 22nd, 2009 at 9:30 pm
Not only should you analyze the factors that make the person an indpendent contractor, but you should also have an agreement with that person spelling out the criteria and how the worker will be treated as an indpendent contractor.
July 28th, 2009 at 2:52 pm
Great point. I'd suggest documenting the specific control held by the independent contractor in performing the duties to be fulfilled. Again, control is the key. You can't have the company control, and then agree to treat the person as an independent contractor. The facts have to support a true independent contractor relationship. Even if everyone agrees to treat the person as an independent contractor, if the facts establish an employer-employee relationship, then that is how the relationship should, and if put to the test, will ultimately be, treated.
July 14th, 2010 at 3:08 pm
[...] For additional information view our previously posted blog “Misclassification of employees as independent contractors”. [...]