By Staff Report
May. 15, 2013
Employers take a risk when they classify someone performing services for them as an independent contractor instead of an employee. Because employers owe contractors far fewer obligations than employees, employers risk each of the following if a court determines that a mis-classification occurred:
Do you know, however, how to spot the difference? Troyer v. T.John.E. Productions, Inc. [pdf], decided yesterday by the 6th Circuit, provides some insight.
The issue in the case was whether the company failed to pay overtime to three individuals who performed road crew services (setting up and breaking down displays) at the company’s collegiate and corporate events. The court determined that the company had mis-classified them, and owed them unpaid overtime as employees:
Plaintiffs testified that their working relationship with Defendants was relatively permanent, they worked hundreds of hours of uncompensated overtime over several months, and that Defendants exercised strict control over their schedule and day-to-day activities while out on the road. Defendants countered that Plaintiffs worked on a job-by-job, independent contractor basis, that the Plaintiffs had a great amount of autonomy regarding how they completed their work.
In determining whether an worker is an employee or an independent contractor, the IRS compares the degree of control exerted by the company to the degree of independence retained by the individual. Generally, the IRS examines this relationship in three ways:
If you are considering classifying someone performing services for you as an independent contractor, your answers to these three questions will determine whether that individual is a bona fide contractor, or instead, is a employee. When in doubt, err on the side of caution. The government applies these tests aggressively to find employee-status whenever it can. You should too, and the risks are too high to make a mistake.
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