Life would be easier if you could simply transform your employees into independent contractors. Think about it: No more worries about tax withholding, providing benefits and other hassles.
But before you decide to convert employees to independent contractors, remember that it isn’t the label that counts, but the actual work performed. Calling someone an independent contractor doesn’t make him one.
Recent case: Avtandil worked for Helpful Hands Transportation as a driver, transporting patients to medical appointments. Insurance companies paid for the services and drivers were employees. Then Helpful Hands told all its drivers that they would no longer be employees. Instead, they were told to create their own limited liability companies.
Avtandil did as he was told and was soon working as an independent contractor. He bought his own insurance, provided his own equipment (except for a two-way radio) and was paid on a per-patient basis at a rate that amounted to 70% of what the insurance companies paid Helpful Hands. Then the company terminated its agreement with Avtandil.
He applied for unemployment compensation, but Helpful Hands said he wasn’t eligible because he hadn’t been an employee.
The court disagreed. It said the two factors that counted most were that the company controlled exactly how patients were transported and that it could terminate drivers at will without incurring liability for breach of contract. Avtandil got the benefits as an employee. (Baindurashvili, et al., v. Helpful Hands, No. A12-0657, Court of Appeals of Minnesota, 2012)