More and more businesses are meeting their needs by hiring independent contractors. Business owners benefit by avoiding the administrative hassles and the out-of pocket costs of payroll taxes and fringe benefits. The trend toward independent contractors will likely continue as business owners cope with the insurance mandate of President Obama’s Patient Protection and Affordable Care Act by hiring independent contractors rather than full-time workers.
There is a fine line between an independent contractor and an employee. Here are some of the factors that are considered:
Behavioral Control Factors: These factors measure whether there is a right to direct or control how the work is done.
Financial Control Factors: These factors measure whether there is a right to direct or control how the business aspects of the worker’s activities are conducted.
Relationship Factors: These factors measure how the parties perceive their relationship.
The application of these factors is illustrated by a recent case. In Atlantic Coast Masonry, Inc. The workers provided their own tools and were free to seek employment with other businesses, the construction company always delivered instructions to the workers prior to commencement of the project and many workers worked exclusively for the construction company. The workers worked a required eight-hour day; they could be fired at will; and they received weekly cash payments based on their productivity. In other words, how the business owners and contractors characterize the relationship does not necessarily control. The IRS reclassified masons as employees and charged the construction company $700,000 in back taxes.
There are 3 important steps business owners can follow to make sure the independent contractor relationship is honored.