Hiring Workers as Employees vs Independent Contractors.pptx
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GROWTH Business Information Series A monthly informational series to learn key aspects of business ownership hosted by the HEB Chamber GROWTH Goal Team Hiring Workers as Employees or Independent Contractors Presented by: Susan Looney Insight HR Strategies
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Hiring Workers as Employees vs Independent Contractors.pptx
- 1. Hiring Workers as Employees vs Independent Contractors Susan Looney, SPHR President Insight HR Strategies
- 2. Overview Difference between independent contractors and employees Tests used to determine independent contractor status The benefits of using independent contractors The consequences of misclassifying employees as independent contractors Best practices and recent trends
- 3. What is an Independent Contractor? Generally, an independent contractor is a worker who: Offers their services to the public for a fee Is not economically dependent on any single company Is not an employee
- 4. What is an Independent Contractor? (cont’d) An independent contractor typically: Is engaged only for the time required to perform a specified service or task Retains control over the method and manner of work Retains economic independence and is free to offer their services to more than one company Is responsible for paying their own income, social security, and medical taxes Is not covered by most federal, state, or local laws designated to protect employees.
- 5. What is an Independent Contractor? (cont’d) An independent contractor typically does not: Receive company-sponsored benefits, such as paid vacation, health insurance, or retirement benefits. Perform the same work as the company’s employees. Have the “indicia” of an employee, such as company uniforms, name badges, or business cards.
- 6. Independent Contractor vs. Employee An employee, by comparison, is subject to significant oversight and control by the company and: Is paid wages and receives company-sponsored benefits. Is employed for a continuous period and performs whatever tasks the company requires. Generally, pays their income, social security, and Medicare taxes through the amounts their employer is obligated to withhold from their wages. Is economically dependent on the employer. Is protected by applicable federal, state, and local employment laws.
- 7. Tests for Independent Contractor Status Do not rely on generalizations or labels to determine employee or independent contractor status. Simply referring to a worker as an independent contractor, even if they agree to that designation, is not enough. Classification depends on: The facts of each case. Application of the appropriate independent contractor tests. Differences in how courts and government agencies interpret those tests.
- 8. Tests for Independent Contractor Status (cont’d) There is no single test to determine independent contractor status for all purposes. The various tests include: The Economic Realities Test. The Control Test. Common law and other federal law tests. State law tests.
- 9. Economic Realities Test Used to assess independent contractor status under the Fair Labor Standards Act (FLSA). Courts look at the totality of the parties’ relationship and use a balancing test to evaluate various factors, including: The degree of control the company has over the worker. The relative investment in facilities. The worker's opportunity for profit and loss. The permanency of the parties' relationship. The skill required. Whether the worker's services are integral to the company's business.
- 10. The Control Test: The IRS Standard Used to determine whether a worker is an employee for federal tax purposes. Analyzes three aspects of the worker's control or independence: Behavioral control. Financial control. The type of relationship.
- 11. The Common Law Darden Test Commonly used in the context of Title VII of the Civil Rights Act (Title VII), the Americans with Disabilities Act (ADA), the Age Discrimination in Employment Act (ADEA), the Affordable Care Act (ACA), and the Employee Retirement Income Security Act (ERISA).
- 12. The Common Law Darden Test (cont’d) The test considers the following factors: Skill required. Source of supplies and tools. Location of the work. Duration of the relationship between the parties. The company’s right to assign additional projects to the worker. Extent of the worker’s discretion over when and how long to work. Method of payment. The worker’s role in hiring and paying assistants. Regular business of the company and whether the work performed is part of that business. The company’s status as "in business."
- 13. The Common Law 20-Factor Test Previously used by the IRS, this test is commonly used by state agencies making independent contractor determinations. The 20 factors are: Instructions. Training. Integration with the company's operations. Services rendered personally. Hiring, supervising, and paying helpers. Continuing relationship. Set hours of work. Full time or exclusive work.
- 14. The Common Law 20-Factor Test (cont’d) Location where services are performed. Specifying the order or sequence of work. Oral or written reports. Payments. Business or travel expenses. Tools and materials. Investment. Profit and loss. Number of companies with whom the independent contractor works. Advertising services to the general public. Right to fire. Right to quit.
- 15. Other State Law Test (ABC Test) State independent contractor tests can impose a more narrow definition than the federal equivalent. The most common state test is the ABC Test. The ABC Test presumes an employment relationship unless the company shows that: (A) The worker has been and will continue to be free from control or direction over the performance of their work. (B) The work is either outside of the normal course of business for the company requesting the work or performed outside of any of that company's places of business. (C) The worker is customarily engaged in an independently established trade, occupation, profession, or business.
- 16. Special IRS Classifications The IRS has determined that three categories of workers are classified as independent contractors for all federal tax purposes: Direct sellers. Licensed real estate agents. Companion sitters.
- 17. Benefits of Using Independent Contractors Because independent contractors are not employees, companies that use them can generally avoid certain obligations and expenses, including: Tax and insurance obligations. Employment law compliance. Employee benefits. Immigration law compliance. Affordable Care Act (ACA) compliance.
- 18. Tax and Insurance Obligations By engaging independent contractors, companies can generally avoid tax payments, withholdings, and insurance obligations required on behalf of employees, including: Federal, state, and local income taxes. Social security and Medicare taxes. Federal unemployment insurance taxes. State unemployment insurance taxes. Workers' compensation insurance.
- 19. Employment Law Compliance Federal employment laws that cover employees, but generally not independent contractors, include: Fair Labor Standards Act (FLSA). Title VII of the Civil Rights Act (Title VII). Equal Pay Act (EPA). Age Discrimination in Employment (ADEA). Americans with Disabilities (ADA). Genetic Information Nondiscrimination Act (GINA). Uniformed Services Employment Reemployment Rights Act (USERRA). Occupational Safety and Health Act (OSH Act). Worker Adjustment Retraining Notification Act (WARN). Family and Medical Leave Act (FMLA). Employee Retirement Income Security Act (ERISA). National Labor Relations Act (NLRA).
- 20. Employee Benefits Companies often provide benefits to their employees that are not available to independent contractors including, for example: Health insurance, including cafeteria plans. Retirement or pension plans. Stock options. Paid vacations. Sick days. Life insurance. Disability insurance. Fringe benefits, such as tuition reimbursement.
- 21. Immigration Law Compliance and Affordable Care Act (ACA) Compliance Employers are not required to: Verify work authorization (by completing Form I-9) for independent contractors. Provide coverage under the ACA for independent contractors who do not meet the common law definition of "employee."
- 22. Consequences of Misclassification The penalties for misclassification can be serious. If a company misclassifies an employee as an independent contractor, it must ensure compliance going forward and may be liable for: Back wages and overtime pay. Employee benefits, including stock options, retirement benefits, and health plan coverage (or the value of those benefits). Disability payments and workers' compensation. Tax and insurance obligations. Liquidated damages. Civil monetary penalties.
- 23. Employment Law Compliance Improperly classifying an employee as an independent contractor could lead to claims for: Unpaid overtime compensation and reimbursement of work-related expenses. Reasonable accommodation and return to work benefits under the ADA and its state equivalents. Leaves of absence under the FMLA and its state equivalents. Plant closure and mass layoff notice and penalties under WARN and its state equivalents. Discrimination under Title VII, ADEA, and other federal, state, and local anti-discrimination laws.
- 24. The Affordable Care Act Misclassification of employees as independent contractors directly impacts both: A company's compliance obligations under the ACA. Its exposure to related penalties.
- 25. Tax and Insurance Obligations The tax and insurance liabilities for misclassification are significant and can include: Years of unpaid federal, state, and local income tax withholdings. Social security and Medicare contributions. Workers' compensation and unemployment insurance premiums, including federal unemployment taxes. Interest and penalties.
- 26. Targets of Enforcement and Litigation Industries particularly susceptible to regulatory enforcement for independent contractor misclassification include: Construction. Transportation and trucking. Cable companies. Janitorial services. Landscaping and nurseries. Security services. Nursing. Delivery drivers. Child care. Home health care. Internet services. Restaurant and catering services. Staffing services. Hotels and motels. Oil and gas.
- 27. Best Practices To ensure that independent contractor classification requirements are satisfied: Use an independent contractor agreement to establish the terms of the working relationship. Avoid using former employees as independent contractors and having independent contractors do the same work as employees. Avoid using independent contractors to perform work that is integral to the business. Require independent contractors to complete a Form W-9, Request for Taxpayer Identification Number and Certification. Keep independent contractor files with vendor files, not employee files.
- 28. Best Practices (cont'd) Pay contractors by the project or by an agreed-on flat fee at regular intervals, not by the hour, week, or month. Do not reimburse independent contractors for business expenses. Do not provide contractors with employee-type benefits like paid vacation, paid holidays, sick leave, and retirement benefits. Do not schedule hours or days of work for contractors or their employees. Avoid requiring uniforms, grooming standards, and similar workplace requirements typically imposed on employees. Issue separate guidelines for independent contractors, vendors, and other third parties instead of providing them with a copy of the employee handbook.
- 29. Best Practices (cont'd) Do not invite contractors to employee-only events or meetings. Do not provide contractors with company business cards. Do not give independent contractors job titles. Deal with performance problems as contract modification or breach issues, not as disciplinary issues. Do not conduct performance evaluations for independent contractors. Do not involve Human Resources in the business relationship with independent contractors. Determine if the company's competitors classify similar workers as employees instead of independent contractors. Regularly audit the company's independent contractor arrangements and template agreements. Do not control the details of how the independent contractor performs the work. Focus on the end result rather than the details.
- 30. Trends Independent contractors play a significant role in the on-demand business model. The on-demand economy refers to the use of technology to deliver goods and services to users on demand including, for example: Car service (Uber and Lyft). Accommodations (Airbnb). Grocery purchase and delivery (Instacart). Home cleaning and handyman services (Handy). Personal assistant and concierge services (TaskRabbit). Dog-walking services (Rover).
- 31. Trends (cont’d) Drivers, shoppers, and taskers are frequently classified as independent contractors and are generally free to accept or reject work opportunities based on their own schedule and use their own vehicles, tools, and supplies. Some workers and regulatory agencies such as the Department of Labor (DOL), however, have challenged the independent contractor status of on- demand workers under state and federal law.
- 32. Trends (cont’d) Companies operating in the on-demand economy should: Continue to monitor misclassification litigation against on-demand providers. Become familiar with those aspects of independent contractor arrangements that courts and regulatory agencies determine are inconsistent with existing independent contractor classification standards.
- 33. Hypothetical 1 Jan is a graphic designer for Image, Inc., a graphic design company. Jan has excellent credentials and has been a valued Image employee for several years. Upon returning from maternity leave, Jan told her manager that she's decided to stay home with her new baby and two other young children instead of working full time. However, Jan said she would like to work a few hours a week to keep her skills sharp and to earn a small income. Jan's manager believes a few hours a week is better than losing Jan altogether and agrees to hire her as an independent contractor. The manager asks Jan to sign an agreement acknowledging in writing that she is an independent contractor and asks her to set up a business entity, as required by Image's vendor guidelines. Jan establishes an LLC, signs the agreement, and begins working 10 hours a week as a contractor for Image. Both Jan and her manager are happy with the arrangement. ------ Is Jan properly classified as an independent contractor under the FLSA?
- 34. Answer to Hypothetical 1 Probably not. The hypothetical does not tell us some important facts, such as whether Jan provides design services for clients other than Image, whether she is paid hourly or on some other basis, and which party (Jan or Image) determined her rate of pay, schedule, and so on. Additionally, the fact that Jan now does the same work as a contractor for Image that she once did as its employee seriously undermines her classification as an independent contractor. Employees and independent contractors generally are not interchangeable. Jan's work as a graphic designer is also integral to Image's business, which suggests an employment relationship may exist.
- 35. Hypothetical 2 Jane is a certified personal trainer with several years of experience. She teaches individual and group sessions at three different gyms, including Bolt. Bolt is part of a large chain of gyms and a consistent client experience is part of its business model. For that reason, Bolt asks Jane to wear a Bolt nametag and Bolt activewear when she is teaching. Bolt schedules the sessions, handles registration, collects session fees from Bolt members, and pays Jane a flat fee for each session. Jane must commit to at least ten session hours each week and at least four hours every Saturday for consultations scheduled by Bolt. Jane enjoys the flexibility and variety of working at different facilities, but she prefers the arrangement with Bolt because, unlike the other gyms, she is not responsible for administrative tasks such as scheduling and collecting money. Also, Bolt has the best equipment of the three and does not charge her rent for the studio space.
- 36. Hypothetical 2 (cont’d) Recently though, Bolt canceled several of her sessions at the last minute because of low registration numbers. Jane was able to replace some of the lost income by scheduling extra sessions at another gym, but she was not paid for the time she spent at Bolt setting up and putting away equipment in preparation for the sessions Bolt ultimately canceled. When she complained to a fellow trainer, he said Bolt should pay her for that time, even if the sessions were canceled, because she is a Bolt employee. ------ Is Jane’s fellow trainer correct?
- 37. Answer to Hypothetical 2 Probably. Many of the facts in this hypothetical suggest an employment relationship exists. For example, Bolt exercises a significant degree of control over Jane’s work, including scheduling sessions and consultations, registering participants, and collecting payment. Bolt requires a minimum number of hours from Jane, which must coincide with Bolt’s session schedule, and requires Jane to wear its branded clothing and nametag. Jane personally performs the work for Bolt and does so at Bolt’s location.
- 38. Answer to Hypothetical 2 (cont’d) Jane is paid a flat fee for each session, regardless of the number of participants, and is paid nothing if Bolt decides to cancel a session Jane is scheduled to teach. Also, Jane’s investment is minimal compared to Bolt. Bolt provides the studio space and equipment, and covers costs such as advertising and overhead. Finally, Jane’s work as a personal trainer may be considered “integral” to Bolt’s physical fitness business.
- 39. Questions?
Hinweis der Redaktion
- Presenter Notes: An entity contracting with an independent contractor generally has the right to control only the end result of the project, not how the independent contractor accomplishes it. Companies that engage independent contractors issue them Form 1099-NEC (before tax year 2020, Form 1099-MISC) for income-reporting purposes (if the company paid the independent contractor at least $600 that year). The contracting company generally has no obligation to provide benefits to the independent contractor or withhold or pay employment taxes on the contractor's behalf (except when backup withholding is required, in the case of a missing or incorrect tax identification number for the independent contractor). State and local law, however, may extend certain rights and protections to independent contractors, such as paid leave for specified purposes. In addition, independent contractors are generally free to offer their services to the public and to perform work for other clients. Independent contractors often own their own businesses and provide services according to their own terms.
- Presenter Notes: Independent contractors typically do not perform the same work as the company’s employees. For example, a graphic designer may be an independent contractor when they offer graphic design services to a shoe company but is more likely to be an employee if they provide graphic design services to a graphic design company. Independent contractors and employees are not interchangeable. Whether an independent contractor has the “indicia” of an employee depends on the circumstances. For example, in some situations, an independent contractor needs access to the employer’s workplace, which requires a company-issued ID badge. Companies can often address these situations by, for example, issuing ID badges to independent contractors that are different from those used by employees, such as badges that are a different color or size, only allow access to certain areas, and expire on a particular date. State and local law, however, may extend certain rights and protections to independent contractors, such as paid leave for specified purposes.
- Presenter Notes: An employee is not required to pay all employment taxes directly to the government. The company pays certain taxes on the employee's behalf through wage withholdings.
- Presenter Notes: There is no single test to evaluate independent contractor status for all purposes and compliance is often complicated by the fact that different tests may apply to the same situation. For example, the test to determine independent contractor status under federal tax law is not the same as the test applied under the Fair Labor Standards Act (FLSA). Different tests and interpretations can mean: A worker is an independent contractor for some purposes and an employee for others (such as under state and federal law, for example). A worker who provides two different services to the employer is an employee for one purpose and an independent contractor for the other. Courts applying the same test to the same position may arrive at different results.
- Presenter Notes: No single factor determines a worker's status as an employee or independent contractor. Courts look at the working relationship as a whole, rather than looking at only the parties’ agreement, the worker’s title, or other isolated factors. The Department of Labor (DOL) has traditionally relied on these same or similar factors, as well as evaluating the degree of independent business organization and operation. The agency has also taken the view that the time or mode of payment is not conclusive evidence of independent contractor status and that it is irrelevant: Where the work is performed. Whether a formal agreement exists. Whether the worker has incorporated a business or is licensed by a government agency. However, the DOL's current position on independent contractor classification under the FLSA is unsettled and the agency's definition of the appropriate test has changed in recent years. Companies engaging independent contractors should continue to monitor developments affecting independent contractor classification, including new rulemaking.
- Presenter Notes: Behavioral control: A worker is an employee when the company (or other third party) has the right to direct and control the worker. This factor considers whether the company controls or has the right to control not only what the worker does, but how the worker does it. Financial control: This refers to whether the company has the right to control the economic aspects of the worker's job. This factor considers whether the business aspects of the worker's job are controlled by the company or the worker (including, for example, how the worker is paid, whether expenses are reimbursed, and which party provides tools and supplies). Type of relationship: This refers to how the relationship is perceived by the worker and company. It depends to a large extent on how the relationship is structured. This factor considers whether: The parties have a written agreement. A written agreement supports an independent contractor relationship. The worker receives employee-type benefits (for example, pension plan, insurance, or vacation pay). Receipt of those benefits suggests an employment relationship. The relationship is indefinite. An indefinite relationship suggests an intent to create an employment relationship. The services provided are a key activity of the business. Provision of key services suggests the worker is an employee.
- Presenter Notes: The Common Law Darden Test (named after the case brought by an agent to recover retirement benefits) also considers: The provision of employee benefits. The tax treatment of the worker. The test focuses on the company’s right to control the manner and means by which the worker performs the work. Another test used by some courts is the "Hybrid Test," which is a hybrid of the common law Darden factors and the economic realities test. The test is used by some courts to determine independent contractor status under employment statutes like Title VII and the ADEA.
- Presenter Notes: Instructions: An independent contractor generally should not be given instructions or procedures regarding details or methods and should not be supervised. Training: An independent contractor generally should not need training and ideally should have previous expertise in performing the work. Integration with the company's operations: An independent contractor's services are usually separate from the client's business and are not integrated or merged into it. Services rendered personally: An independent contractor usually has the right to employ others and assign them to perform the services in their place. Hiring, supervising, and paying helpers: If the company supervises or directs the work of the independent contractor's employees or assistants, this supports a finding of an employment relationship. A true independent contractor selects, hires, and reimburses their own assistants. Continuing relationship: An independent contractor tends to be hired for a finite project and the relationship ends when the project is complete. An indefinite or continuing relationship is indicative of an employment relationship. Set hours of work: Requiring a worker to work during set hours is a clear indication of control and indicates an employment relationship. Full time or exclusive work: An independent contractor is generally free to perform work for many companies simultaneously. Requiring the worker to work full time or exclusively for the company is a strong indicator that the worker is an employee.
- Presenter Notes: Location where services are performed: Requiring work to be done on company premises implies a degree of control over the work, suggesting an employment relationship. Independent contractors ordinarily work wherever they choose (though the type of work may dictate the location). Specifying the order or sequence of work: A company generally has control over the worker if it specifies, by contract or in practice, the order or sequence of work. Oral or written reports: Oral or written progress reports suggest an employment relationship. Payments: An employee is typically paid at regular intervals, while an independent contractor is more likely to be paid a negotiated flat fee or to submit a bid and then be paid by the job. Paying the worker through payroll suggest an employment relationship while paying through accounts payable on receipt of an invoice suggests an independent contractor relationship. Business or travel expenses: Few expenses are reimbursable to an independent contractor and those that are should be extraordinary. All normal office expenses should be paid for by the independent contractor. Tools and materials: An independent contractor generally should have the tools and materials necessary to achieve the agreed upon results. Investment: Independent contractors are expected to invest in their own business. If the contractor's investment is relatively minor compared to the company, it tends to undermine an independent contractor arrangement. Profit and loss: Employees are generally shielded from profit and loss. Independent contractors, however, risk the investment of their time and money and may sustain losses as a result of a downturn in business. Independent contractors may also benefit from their own efforts to increase business and grow their investment. Number of companies with whom the independent contractor works: Independent contractors typically can choose between competing assignments. The more dependent the worker is on a single company for income, the more likely an employment relationship exists. Advertising services to the general public: Business cards, letterhead, and advertising may be indicators of independent contractor status. Right to fire: The contract should only allow for termination if the results do not meet the contractual requirements. On the other hand, the ability to terminate the relationship at-will, especially before the task is complete and without any liability, suggests an employment relationship. Right to quit: An independent contractor is usually contractually bound to complete the assignment and liable for any failure to deliver the specified result.
- Presenter Notes: In addition, a majority of states use the ABC Test for state unemployment tax purposes. The test is called the ABC Test because of the three requirements ((A), (B), and (C)).
- Presenter Notes: These IRS determinations apply for all federal tax purposes (regardless of the outcome reached by applying any of the tests for independent contractor status): "Direct sellers" include: Workers engaged in selling (or soliciting the sale of) consumer products in homes or businesses other than in a permanent retail establishment. Workers engaged in selling (or soliciting the sale of) consumer products to any buyer on a buy-sell, deposit-commission, or similar basis, for resale in homes or businesses other than in a permanent retail establishment. Workers engaged in delivering or distributing newspapers or shopping news (including any services directly related to that delivery or distribution). "Licensed real estate agents" include workers engaged in appraisal activities for real estate sales if they earn income based on sales or other output. "Companion sitters" are individuals who furnish personal attendant, companionship, or household care services to children, the elderly, or the disabled
- State and local governments, however, are increasingly extending employee-type protections to independent contractors, such as requiring paid leave for specified purposes.
- Presenter Notes: Independent contractors are generally issued Form 1099-NEC (before tax year 2020, Form 1099-MISC) at the end of each year that they were paid $600 or more, whereas employees are issued a W-2. Independent contractors are generally not entitled to unemployment compensation benefits. However, unlike employees who may be limited to the exclusive remedy of workers' compensation, independent contractors are free to sue for work-related injuries.
- Presenter Notes: Independent contractors are not counted for purposes of determining coverage under these statutes and they cannot pursue the statutory remedies available to employees. Various state and local employment laws also protect employees but generally do not cover independent contractors. State and local governments, however, are increasingly extending employee-type protections to independent contractors, such as requiring paid leave for specified purposes. Fair Labor Standards Act (FLSA): The FLSA includes minimum wage and overtime pay requirements for nonexempt employees. For example, while the FLSA generally requires companies to pay nonexempt employees overtime compensation for hours worked over 40 in a workweek, it does not require that companies do the same for independent contractors. Employee Retirement Income Security Act (ERISA): In the retirement plans context, ERISA requires companies to make 401(k) and retirement benefits available to all employees on the same basis. In addition, retirement plans can lose their tax qualification if they cover non-employees, such as independent contractors. Regarding health plans, independent contractor issues may arise in the plan eligibility context. Also, the ACA expanded ERISA to require large employers to either provide health coverage that is affordable and provides minimum value or pay a penalty. Misclassification issues could affect whether employers are subject to this "play or pay" requirement (also known as the "employer mandate").
- Presenter Notes: The ACA determines "employee" status using the Common Law Darden Test. Workers properly classified as independent contractors are not counted among a company's employees for purposes of the ACA's coverage obligations and penalty calculations.
- Presenter Notes: Because an independent contractor is excluded from many of the tax and other employment law protections of an employment relationship, the DOL, the IRS, state government agencies, and courts construe independent contractor status narrowly and impose large penalties for misclassification.
- A misclassified worker may be retroactively entitled to rights under local, state, and federal employment statutes.
- Presenter Notes: Penalties under the ACA's employer mandate are generally calculated by multiplying the number of full-time employees (less the first 30) by the applicable payment amount. Therefore, reclassifying workers (who were previously treated as independent contractors) as employees can mean: The company now has a sufficiently large population of full-time employees to qualify as a large employer for employer mandate purposes and additional requirements involving ACA information reporting. Non-compliance penalties under the ACA increase as the number of full-time employees used to calculate those penalties increases.
- Presenter Notes: The obligation to satisfy the independent contractor classification requirements continues beyond contractor selection. Independent contractor agreements: Use written independent contractor agreements. Also, avoid using employment applications, employment agreements, and other employee on-boarding documents when engaging independent contractors. In addition: Regularly review independent contractor agreements and make adjustments when necessary. Prepare a new agreement if an independent contractor is engaged for a new term or project. Form W-9: Require independent contractors to complete this form. Do not complete a Form I-9 for contractors.
- Presenter Notes: Payment of contractors: Require contractors to submit invoices and pay those invoices from accounts payable, not payroll. Issue a Form 1099-NEC to any independent contractor paid $600 or more in a particular year. Business expenses: An independent contractor operates a business and is responsible for expenses. Contractors should factor business expenses, such as travel, supplies, and tool rental, into the cost of the project. A contractor's ability to manage expenses and set the fee for their services, without being reimbursed by the company for business expenses, supports a finding that the contractor is economically independent of the company. Separate guidelines for independent contractors: These guidelines may include: Entry and exit procedures. Parking areas. Policies prohibiting weapons, alcohol, tobacco, and drugs on company property. Anti-harassment policy. Contact information for company personnel responsible for interacting with contractors, vendors, and third parties.
- Presenter Notes: Employee-only events or meetings include: Holiday parties. Company retreats. Team-building events. Town halls. Employee recognition events. Social events, such as birthdays and baby showers. Other best practices include: Do not assume that calling a worker an "independent contractor" instead of an "employee" will determine the worker's status. Do not assume that issuing a Form 1099-NEC instead of a W-2 makes the worker an independent contractor. Do not assume industry practice satisfies the requirements for independent contractor classification. Entire industries (construction, for example) are often the target of enforcement efforts. Use caution when policies, such as headcount freezes, may result in managers using independent contractors to fill open positions.
- Presenter Notes: As with other independent contractor situations, whether on-demand workers are properly classified as independent contractors depends on the facts of the case, the tests applied, the applicable federal, state, or local law, and the jurisdiction. For example, some courts have found that Uber drivers are employees, while others have concluded they are independent contractors. One challenge is that the on-demand economy involves a new working relationship, where customers and workers are paired through an online platform or app provided by a third-party. The current tests for independent contractor status may have made sense in manufacturing or office settings, but they can be difficult to apply in this new environment.