Weekly HR News - Employee vs. Ind. Contractor (Relationship Factor)
Employee vs. Independent Contractor
Weekly HR News – Part 4 of 4 (Relationship Factor)
As stated in the previous articles, the determination as to whether a worker is considered an employee or independent contractor is based on three main groups which are:
- Behavioral Control;
- Financial Control; and
- Type of Relationship.
In the previous articles we looked at behavioral control and financial control and this week we will cover the final part of the test, which is the relationship factor. Facts that indicate the parties’ relationship include:
- Written contracts describing the relationship the parties intended to create. However, this is the least important of the criteria, since what matters is the underlying nature of the relationship, not what it is called in a contract;
- Whether the business provides the worker with employee type benefits. Employees receive insurance, retirement, vacation and sick time, but an independent contractor will finance their own benefits out of the profits of their enterprise;
- The permanency of the relationship. If the city engages a worker with the expectation that the relationship will continue indefinitely, this is evidence that it is an employer-employee relationship, but If it is for a specific project or period, it is likely an independent contractor relationship; and
- If a worker provides services that are a key aspect of the city’s regular business activity, it is more likely that the city will have the right to direct and control the worker’s activities and the worker is considered an employee.
To assist employers in making the correct decision when it comes to whether or not a worker is an employee or an independent contractor, see IRS Publication 15-A which offers detailed information and examples of whether a worker should be classified as an employee or an independent contractor. http://www.irs.gov/pub/irs-pdf/p15a.pdf. The IRS can also assist in making a determination of independent contractor status if the city needs assistance, through the use of Form SS-8, which is prepared by the city, as the employer, and sent to the IRS. The form can be found at http://www.irs.gov/pub/irs-pdf/fss8.pdf.
KLC also has an easy to use checklist that can assist in making this determination. For a copy of the checklist, or more information on this or any other personnel related matters contact Andrea Shindlebower.
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