Master Builders of Iowa

| By: Leon Shearer, MBI Labor Counsel |

One of the frequent solutions that contractors use to try to avoid complicated employment situations is resorting to the independent contractor (IC) concept. With one simple contract they avoid complicated problems like paying overtime, time recordkeeping, reports to the government, payments and reports to the union for fringe benefits, cost of worker’s compensation, liability insurance cost, bothersome unemployment hearings and payments that usually follow these kangaroo hearings, and all those costly benefits like pensions and health insurance. These relationships also give them a great competitive advantage. Sound too good to be true? It is.

The laws, guidelines and test in this area are many, and there is no assurance which will control. The consequences of being wrong are significant and long term. Your company’s risk of government action, union action, liability for the uninsured acts of the IC, liability for back benefits or for worker’s compensation payments are high stakes gambles.

My simple approach is to sit back and look at what the person does day to day. If they look like an employee and are controlled like an employee, they likely will be deemed an employee.

The IRS has given some guidance. None of these factors are controlling. As your company looks at an IC situation, the more of them that you can incorporate to show the IC status the more likely you will be safe.

1. How much control has your company retained to give instructions as to how, when, where and with whom the work is rendered.  The less the better.
2. How much training has your company given to prepare the person to do the work. Less is better.
3. Must the services be rendered personally or can designees or substitutes be utilized? The more flexibility to use others to maximize profits the better.
4. Is the relationship of a continuous nature? (One frequent mistake is to have someone be an employee by day and IC by night. You are a clay pigeon for the plaintiff’s lawyers who are anxious to yell pull and have a shot). Think about outside services. Do you have breaks in their usage? How can the continued rendering of service not be by an employee?
5. Are the hours of service set by your company? Flexibility is part of a normal IC’s status. Of course scheduling the time when they agree to arrive is normal even for ICs.
6. Can the IC hire, supervise and pay others?
7. Is the work generally on the company’s premises?
8. What is the manner of payment? The more the payment looks like an hourly or periodical wage the more it looks like an employee status and less an IC with a profit potential.
9. Is there really a potential for a profit?
10. What are the rules around being discharged or having the contract terminated? The normal IC is engaged to produce a result and has flexibility to accomplish that goal. The right to terminate at will is a big employee factor in my opinion.
11. How integrated into the usual business is the IC? The closer they are to being part of everyday business the more likely they are employees.
12. Does the person have to devote full time to the assigned task or can they move from job to job to maximize profit?
13. How much reporting control on sequencing or performance status of performance is required? The tighter the controls of the project the more it looks like an employee status.
14. Payment for travel, providing tools, and lack of an investment in the business all look like an employment status.
15. The flexibility to work for others and holding these services out to others help the IC status.

My usual advice is if you can’t find the services in question in the yellow pages treat it like an employee status. The risk is too costly to incur, and such cases are very difficult to defend. Don’t feed the growing herds of lawyers. Let them starve by being smart and not taking that easy IC route.