What if your independent contractors wake up tomorrow and decide they actually should be considered employees? Too many companies think they've got a bulletproof case against such revolts simply because their independent contractors signed agreements attesting to their contractor status. The truth is, that's not good enough.
Courts look beyond labels and contracts. They focus on the actual worker/employer relationship. The more control you exert over the person's work, the more likely the person is considered an employee. Courts will also look at the worker's opportunity for profit and loss, plus the degree of independent initiative required to do the job.
To maintain independent contractor status, keep ties between the company and the worker to a minimum. For example, require contractors to provide their own equipment and supplies. Don't give them an expense account. Allow contractors to choose their own work schedules within a general time frame, don't tie them to office hours. Don't supervise their work beyond expected standards of quality.
Recent case: A top Mary Kay sales manager learned that she was both pregnant and had breast cancer. Because she couldn't meet her sales quota, she asked for a quota reduction as accommodation. The company refused, took away her company car and threatened to fire her.
She sued, alleging wrong-ful termination because of a medical disability. The company argued that she was an independent contractor, not an employee, and therefore wasn't legally able to sue foror disability rights. As proof, the company pointed to a signed agreement saying that she was an independent contractor.
A jury answered by awarding the sales manager $11.2 million, ignoring the signed pact. Labels aside, the jury viewed her as an employee because she managed a staff, was required to attend meetings and pledged to sell only for Mary Kay. (Woolf v. Mary Kay Cosmetics, No. 00-5612-J, U.S. D.C., Dallas County, Texas, 2002)
? Free E-visory report: 'Independent Contractor or Employee? How to Make the Call'
The IRS uses a 20-factor test to determine whether a worker is an employee or an independent contractor. In recent years, the IRS has reprioritized those 20 factors. Pick up a free two-page report detailing the IRS' new approach to the 20-factor test, Independent Contractor or Employee? How to Make the Call, at our You & the Law Extra! Web site, www.you-and-the-law.com/extra.