Employee Or Independent Contractor?

Lisa,

I need someone to help me out in my business, but only on a part-time basis. I really don’t want to hire an employee and have to shell out money for payroll taxes. I would rather bring somebody on as an independent contractor, and just send that person a form 1099 at the end of the year. Can I do this?   - Sal   

 Dear Sal:      

Unfortunately, you are not the judge of whether the worker you engage to help you out in your business is an independent contractor. The law determines whether a worker is an independent contractor or an employee. And the law is not always clear. However, I will discuss some general guidelines.

The relationship between the worker and your business is the most critical factor that must be analyzed. The amount of control that you have over the worker and the level of independence the worker has are primary determinants. The more control you have over how, when and where the person does his or her work, the more likely it is that the worker will be classified as an employee. For example, if you are giving directions, providing training, and the worker is using your equipment or facilities, that person is more likely to be deemed an employee. On the other hand, if the worker sets his own hours and uses his own tools or equipment, he or she is more likely to be considered an independent contractor.

There are other factors that will help determine whether a worker is an employee or an independent contractor under the law. Some of these are:  

• The person also does work for many other businesses - Independent Contractor.
• The person works only for you - Employee.
• Your business does not provide any employee-type benefits to the worker  -  Independent Contractor.
• Your business provides health insurance and other benefits to the worker - Employee.
• The person determines the details of how the work is performed – Independent Contractor.
• Your business determines the details of how the work is performed - Employee.

In conclusion, it is the substance of the relationship, not the label, that will govern the worker’s status as an employee or an independent contractor. If you wrongly classify a worker as an independent contractor, you could end up owing back taxes, interest and penalties.

This column only scratches the surface of this important issue. Sal, you should consult with an experienced business attorney before deciding to classify this worker as an independent contractor. There also are several other considerations and factors that need to be taken into account. If you would like to discuss your situation in greater detail, please feel free to contact me.  

If any reader would like to ask me a legal question, post it on the Lake Zurich Patch website or send your question to me at lehmanlawoffices@aol.com.

Thank you for your question, Sal.

My Best Regards,

Lisa

Disclaimer:  Please be aware that this column provides only legal advice of a general nature and it is not intended as legal advice for any person or group of persons. You must always consult with an attorney with respect to your particular legal situation.