By Elliot N. Dinkin
President & CEO
Cowden Associates, Inc., a UBA Partner Firm
It's not always clear, particularly for a small business, on whether you should bring on an independent contractor versus a part-timer. Classifying these workers incorrectly is very costly and careful planning can help to mitigate the impact. Here are four tips to help you avoid making the wrong decision:
1. The company's right of supervision and control over the worker is the critical issue. Many of the other factors are ways to hide or to uncover evidence of control (or lack of it). Always focus your attention on the control factor.
2. Start your analysis by determining whether the worker will be integrated into the company's workforce and operations.
a) If the worker is not integrated into the company's operations and the right of control is not obviously apparent (no training, no work hours, no reports), you are reasonably safe as long as the relationship is short-term and the independent contractor has other customers.
b) If the worker is integrated into the company's operations, the company is at risk (because control is likely to be inferred from integration) unless several factors point strongly in the direction of independent contractor status. Look for evidence that the worker is engaged in a distinct business or occupation requiring specialized skill
3. Be aware that the status of a particular worker usually lies somewhere along a continuum. Your goal is to avoid obvious misclassifications and narrow the area of uncertainty.
4. The decision to hire an independent contractor represents a calculated business risk. Assess the risk of misclassification, including the dollar amount of payment and duration of relationship, probability that worker will voluntarily pay income tax withholding and social security self-employment tax, risk of liability for workplace injury, etc.
There are also common law and Internal Revenue Code tests that can aid in determining the classification.