You may hire two types of workers for your business: those who are on your payroll and receive benefits, and those who do special projects and control their own work schedule. This distinction may seem simple, but sometimes it is not. For instance, you may have an independent contractor agreement with someone whose work you control or who performs duties outside the scope of the agreement.
If you are unsure of whether your worker is an independent contractor or not, consult an Atlanta employee misclassification lawyer. At Sparks Law, our experienced attorneys can review your hiring practices and employment-related contracts to determine a worker’s status.
For income tax purposes, independent contractors receive Form 1099s and employees receive W-2s. Other defining factors include the following:
Additionally, employers have control over how and when an employee completes an assigned task. Independent contractors work at their own pace using their own methods to complete a project. An attorney at our Atlanta office could review a worker’s duties and help classify them as an independent contractor or employee.
Classifying a worker as an independent contractor can save employers money because they will not have to pay benefits, provide workers compensation insurance, or withhold social security contributions. However, problems arise if workers are misclassified as contractors because they will not be eligible for unemployment benefits, and social security payments at retirement will be reduced. The state and federal government routinely levy fines on employers who incorrectly classify employees as independent contractors. Business owners should consult a local attorney to determine employee status and correct any misclassifications.
The Fair Labor Standards Act (FLSA) enacted by the United States Department of Labor (DOL) published the final ruling governing the status of independent contractors in January 2021. The ruling, 29 CFR Parts 780, 788, and 795, imposes an economic reality or control test made up of two questions: does an employer control a worker’s work? Does the worker profit because of the worker’s initiative?
To pinpoint employment status, the DOL provides other signs that a worker may be an independent contractor, such as if:
The FLSA rule also addresses how much control an employer exerts over a project, since employees take direction and freelancers work at their own pace using their own methods. Employers control employees’ behavior, finances, and business relationship.
Employers control behavior by directing employees on how to do their jobs. For instance, an employer might tell an employee which tasks take precedent and how long they have to finish them. Employees might be assigned different tasks and may be subject to a review of their work. They usually use an employer’s equipment on the employer’s premises. Workers who have more leeway over their hours and determine how to complete a project are typically classified as independent contractors.
Even though employees might be asked to perform various tasks, their wages are the same each week, as opposed to independent contractors who set their price for each task. For example, a salaried accountant who acts as the company’s chief financial officer and reports daily to the chief executive officer is an employee. An accountant who works for an independent firm and conducts a year-end audit of the company for a price set by the accounting firm is an independent contractor.
Independent contractors assume risks and are their own bosses. Employees assume company risks, such as making sure payroll is covered and possibly indemnifying employers if litigation arises. Our knowledgeable Atlanta attorneys can further advise on identifying employees and independent contractors to avoid legal issues over misclassification.
Employment status is important, and business owners who incorrectly designate workers as independent contractors affect their ability to collect unemployment and social security benefits upon retirement. If you are unsure whether someone who works for you is an employee or a freelancer, call Sparks Law today to speak to an Atlanta employee misclassification lawyer and discuss your situation.