An independent contractor is a worker who contracts with individuals or entities to provide services in exchange for compensation. An independent contractor does not work regularly for any single company and is not an employee. Typically, an independent contractor: charges fees for service, is engaged only for the term required to perform an identified service or task, retains control over the method and manner of work, retains economic independence, is responsible for paying his income, social security and Medicare taxes, is not protected by most federal, state or local laws designed to protect employees.
Companies can avoid significant wage, tax and other obligations by engaging independent contractors instead of employees. Using independent contractors can result in considerable cost savings and increased workforce flexibility. Individuals who seek greater control over their work environment and schedules often prefer to become independent contractors.
While independent contractor status can be advantageous for both parties, independent contractor classification involves careful consideration of several factors, application of multiple standards, and exposure to liability in several areas, including, but not limited to, potential liability for years of unpaid overtime pay, taxes and employee benefits. Merely referring to a worker as an independent contractor, even in a written agreement, does not prevent legal challenges to that classification by the workers themselves, the Department of Labor, the Internal Revenue Service, or state and local authorities. Misclassification audits, investigations, and lawsuits are increasingly common and can result in steep costs and penalties.
A company that misclassifies employees as independent contractors may be liable for: back wages and overtime pay, employee benefits, including stock options, retirement benefits, and health plan coverage, disability payments and workers’ compensation, tax and insurance obligations, liquidated damages and civil monetary penalties.
Under Florida law, there is no single, established definition of independent contractor. Different tests are applied to determine whether an individual is an employee or an independent contractor for purposes of workers compensation, whistle-blowing, unemployment compensation, wage and hour laws and employer liability. Different tests and interpretations can mean that a worker is an independent contractor for some purposes and an employee for others or that a worker who provides two different services to the employer is an employee for one and an independent contractor for the other. Further, courts applying the same test to the same position may arrive at different results.
The tests for determining whether an individual is an independent contractor often share some common characteristics. For example, most: involve an analysis of the same or similar factors, are a balancing test and no single factor is determinative, analyze the degree of control the company has over the manner and means by which the worker accomplishes the work, and afford little weight to the parties’ characterization of the relationship, including in a written agreement.
Employers considering utilizing independent contractors should: be very familiar with the different tests that may be applicable (i.e., Fair Labor and Standards Act, Internal Revenue Services, Department of Labor, etc.) monitor misclassification litigation, ensure that independent contractor documentation is standardized and used consistently and carefully draft independent contractor agreements.
Are you an employer considering using independent contractors? The experienced Florida business litigation attorneys at Rosenthal Law Group can ensure your interests are protected. Call us today to start exploring your options.