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Make choice up front: Employee or contractor?

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in Compensation and Benefits,Human Resources,Leaders & Managers,Management Training

Adding staff? Decide up front if you want an employee or an independent contractor. Under the Fair Labor Standards Act (FLSA) and state law, you must pay overtime to nonexempt employees. Not so for independent contractors.
Contractor or employee? Use the IRS test to decide...

Make the employee-or-contractor call well before you bring someone on board. Don’t assume you can make the designation later.

That usually won’t work. And you probably won’t even discover the problem until it’s too late to fix it—when a terminated worker with nothing to lose files an overtime lawsuit.

Make sure your business is protected and your contractors are not misclassified

Recent case: Rexhep Bulaj did repair and maintenance work for Wilmette Real Estate and Management in exchange for a weekly salary and a rent-free apartment. He received a regular paycheck with tax deductions, got a W-2 at the end of the year and had to be on duty during specific hours and at specific properties. Over time, his duties expanded to include showing empty apartments to prospective tenants.

When he was fired, he sued, alleging that he had regularly worked more than 60 hours per week, but had only been paid a set salary that was not based on how long he worked.

The company argued that Bulaj had really been an independent contractor. It said that how he did his work was entirely up to him and that he provided his own tools.

The court said that wasn’t enough to make him an independent contractor, given all the other evidence that the company had treated Bulaj as an employee for more than a decade. (Bulaj v. Wilmette Real Estate and Management, No. 09-CV-6263, ND IL, 2010)

Final note: Don’t try to create an independent contractor agreement yourself. Use an expert resource, like Using Independent Contractors: Legal Safeguards & Compliance Tips, to determine whether the job functions pass the test.
In Using Independent Contractors you’ll find:
    book cover
  • The IRS’ 10-question “test” to establish worker classification
  • A sample contract to make freelance relationships stick
  • Guidelines for 22 states with contracting rules stricter than the IRS’
  • A list of errors commonly made on 1099s
Get your copy today!

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