Independent Contractor or Employee: Why Getting It Right Matters

Treating workers as independent contractors has many benefits for employers, including avoiding the cost of payroll taxes and benefits and not having to deal with the administrative requirements associated with employees. These benefits make independent contractor status an attractive alternative to classifying a worker as an employee, if the worker meets the legal tests for independent contractor status. Unfortunately, many employers mistakenly believe that simply calling a worker an independent contractor or having the worker sign an “independent contractor agreement” satisfies the legal requirements for independent contractor status. Rather, whether a worker is properly classified as an independent contractor or employee depends on the nature of the relationship between the worker and the company as determined under applicable law. Employers who misclassify a worker as an independent contractor face significant federal and state monetary liabilities and penalties. These penalties can be imposed not only on the company but also on the individuals responsible for the misclassification. Therefore, an employer must conduct a careful analysis before classifying a worker as an independent contractor.