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Employee or contractor? Degree of control is key factor

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in Compensation and Benefits,Discrimination and Harassment,HR Management,Human Resources

The IRS and the courts are increasingly ignoring the “independent contractor” label that companies increasingly slap on their workers. Instead, they’re reclassifying those relationships as “employees.” And that’s not good for employers.

Once an independent contractor is reclassified as an employee, the company is on the hook for minimum wage, tax withholding and other responsibilities for these “new” employees.

The key to the classification lies in how much—and what kind of—control your organization asserts over the person’s work.

The more control you exert over when, where and how workers do their jobs, the more likely they’ll be deemed full-fledged “employees” by the courts. (See more criteria in the box below.)

Recent case: Dr. Christopher Johnson, who is black and bisexual, worked as a contract physician at the Riverside Community Hospital. He performed plastic surgery and provided trauma consults in the hospital’s emergency room.

Although his written agreement specified that Johnson was a “contractor,” the hospital determined which shifts he worked and which nurses he worked with. The hospital even told him which credentials he had to put on the wall.

Johnson believed he was truly an employee. He sued for discrimination under a California civil rights act. The court sided with the hospital, simply because the state law didn’t cover employment discrimination.

However, even as it dismissed his case, the court observed that Johnson’s relationship with the hospital “was materially indistinguishable from that of an employee.” (Johnson v. Riverside Healthcare System, No. 06-55280, 9th Cir., 2008)

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