One of the most misunderstood concepts in employment law is that of the independent contractor. Some employers believe that simply changing employees into independent contractors via a written agreement will end their liability for workers’ compensation and unemployment compensation claims, eliminate the need to collect taxes and get rid of other obligations employers have when they have employees.
Before you jump on the independent contractor bandwagon, remember that when challenged, many such arrangements fail to meet legal tests. The more control you assert over so-called independent contractors, the more likely a court will call them employees.
Recent case: Until a few years ago, Helpful Hands employed drivers to transport patients for medical treatment. Then the company converted the drivers to independent contractors and paid them a percentage of the amount collected for each trip from insurance carriers.
The company required the drivers to maintain their own vehicles, buy insurance and cover all expenses. Drivers could theoretically refuse any assignment. In reality, none did.
Two former drivers whose contracts the company terminated applied for unemployment benefits. They argued that they had so little control over their workday that they couldn’t be considered independent contractors.
The court agreed that they were indeed employees and therefore eligible for unemployment compensation. (Baindurashvili, et al., v. Helping Hands, No. A12-0657, Court of Appeals of Minnesota, 2012)
Final note: Remember, different government agencies have different tests for who counts as an employee and who does not. For example, the IRS has one standard, the Department of Labor another. Before converting employees, consult an attorney experienced in wage-and-hour law.
Otherwise, your litigation costs could wind up exceeding what you saved by converting employees into contractors.