What Business Owners Need to Know When Hiring Independent Contractors

In today’s “gig economy,” more and more companies are working with independent contractors. This can provide a number of benefits, including allowing employers to meet certain types of temporary needs and offering workers the flexibility to decide when and how they will complete work. However, business owners should be aware of legal issues that may affect them when they use independent contractors, and by working with a business law attorney, they can protect themselves from liability and ensure they are meeting all of their legal requirements.

Classification of Workers as Employees or Independent Contractors

Employees are guaranteed certain rights that may not be available to independent contractors. These include the right to receive minimum wage and overtime pay, eligibility for workers’ compensation and unemployment benefits, and the ability to receive benefits through their employer. A business may prefer to use independent contractors for certain types of work in order to cut down on costs, but misclassifying workers as independent contractors when they should be considered employees can lead to a variety of legal issues.

In the state of Florida, a set of “common-law rules” are used to determine a worker’s classification. These rules look at:

• Behavioral factors - If a worker is subject to rules from an employer regarding when and how work is performed, they are more likely to be classified as an employee. Independent contractors are usually given more flexibility regarding the hours they work, where work is performed, and the amount of supervision they receive, and they are typically permitted to perform work for more than one employer.
• Financial factors - If an employer controls business-related aspects of the work being performed, a worker is more likely to be classified as an employee. These factors may include whether the employer provides reimbursement for expenses or whether they provide the tools and equipment needed to perform work.
• Type of relationship - The ongoing relationship between an employer and a worker will play a role in how the worker is classified. If the employer provides benefits such as health insurance or vacation pay, this indicates that a worker is an employee. The length of the relationship and whether the work performed is a key part of the employer’s business will also play a role in determining whether the worker is an employee or independent contractor.

Misclassification of workers as independent contractors when they should be employees can result in a number of issues for an employer. A business may be required to pay federal or state employment taxes that it had not withheld from a person’s wages. An employer may be liable for workers’ compensation benefits if a person is injured while working, or they may be required to pay unemployment compensation. Vicarious liability may also apply if a worker caused injuries or damages to someone else while working for the employer.

Sources:

https://www.americanbar.org/groups/business_law/publications/blt/2011/06/03_wood/

https://www.dms.myflorida.com/workforce_operations/retirement/section_218_agreements/independent_contractor_determinations

https://www.thebalancesmb.com/laws-and-regulations-affecting-independent-contractors-398603