The distinction between employee and independent contractor can be hazy, however, misclassification can have serious consequences. As part of the stepped up enforcement of workplace laws, the U.S. Department of Labor plans to hire 100 additional investigators to target employers who misclassify employees as independent contractors. Misclassifying employees as independent contractors can be costly with the employer being potentially liable for unpaid employer taxes as well as a portion of both the income tax that should have been taken from each employee's paycheck and the employee's share of Social Security taxes and Medicare taxes. Misclassifying employees as independent contractors can also violate other laws such as the Fair Labor Standards Act's minimum wage and overtime requirements.
Many community associations classify maintenance personnel and other workers who do various jobs for the Association as "independent contractors" to avoid withholding federal income tax and dealing with unemployment, workers' compensation and other employment issues. Associations are normally under the belief that simply classifying an individual as an "independent contractor" insulates them from any potential liability. However, simply calling someone an "independent contractor" doesn't mean they are, in fact, an independent contractor. Many other factors must be analyzed.
Generally, employees are subject to their employer's right to control how, when and where they perform their work. Independent contractors are not subject to control over the manner in which they deliver services. More specifically, the IRS considers factors in three categories, including:
1. Behavioral Control - If an employer trains and directs work, including hours of work, tools and equipment to be used and how the work is to be completed, the worker is likely an employee.
2. Financial Control - This factor includes how the worker is paid, whether the worker may work for others at the same time and whether the worker can incur a profit or loss.
3. Type of Relationship - A contract that states that a worker is an independent contractor is not enough to determine the work relationship. If a worker provides services that are a key aspect to the business and his work is presented as that of the employer, the worker is more than likely to be considered an employee.
Within these three categories, you must look at the following criteria to determine employee or independent contractor status:
The existence and specific terms of a contract.
When and where the work is performed.
Who owns the tools and equipment that are used?
What degree of instruction is given to perform tasks?
Is the worker subject to a performance evaluation system?
Is training provided to the worker?
Are expenses reimbursed?
Is the worker permitted to provide services to others?
What is the method of calculating payments to the worker?
Classifying workers can be challenging. We encourage you to discuss this issue with legal counsel in order to avoid potentially expensive disputes.
Many community associations classify maintenance personnel and other workers who do various jobs for the Association as "independent contractors" to avoid withholding federal income tax and dealing with unemployment, workers' compensation and other employment issues. Associations are normally under the belief that simply classifying an individual as an "independent contractor" insulates them from any potential liability. However, simply calling someone an "independent contractor" doesn't mean they are, in fact, an independent contractor. Many other factors must be analyzed.
Generally, employees are subject to their employer's right to control how, when and where they perform their work. Independent contractors are not subject to control over the manner in which they deliver services. More specifically, the IRS considers factors in three categories, including:
1. Behavioral Control - If an employer trains and directs work, including hours of work, tools and equipment to be used and how the work is to be completed, the worker is likely an employee.
2. Financial Control - This factor includes how the worker is paid, whether the worker may work for others at the same time and whether the worker can incur a profit or loss.
3. Type of Relationship - A contract that states that a worker is an independent contractor is not enough to determine the work relationship. If a worker provides services that are a key aspect to the business and his work is presented as that of the employer, the worker is more than likely to be considered an employee.
Within these three categories, you must look at the following criteria to determine employee or independent contractor status:
The existence and specific terms of a contract.
When and where the work is performed.
Who owns the tools and equipment that are used?
What degree of instruction is given to perform tasks?
Is the worker subject to a performance evaluation system?
Is training provided to the worker?
Are expenses reimbursed?
Is the worker permitted to provide services to others?
What is the method of calculating payments to the worker?
Classifying workers can be challenging. We encourage you to discuss this issue with legal counsel in order to avoid potentially expensive disputes.
