As a business owner, not all the people you hire are employees. You might add seasonal workers during holidays or take on college interns. More commonly, you might hire independent contractors to complete a particular task.
As an experienced attorney could explain, these independent workers operate differently than employees and do not receive the same benefits. For instance, contractors do not accumulate quarters toward Social Security payments at retirement.
However, it is important not to misidentify an employee as an independent contractor, as this could lead to legal issues. Speak with a Connecticut employee misclassification lawyer to learn how to properly identify workers and avoid problems with the Department of Labor.
Employees often receive benefits along with a salary or hourly wage. These can include participation in the company’s health insurance or retirement plans. Workers’ compensation insurance is provided for employees injured on the job. Usually, sick days and vacation weeks are accumulated. Social Security taxes are deducted from payroll.
These benefits cost employers who contribute to plans, Social Security, and pay when an employee is away from work. At year’s end, employees receive a W-2 that lists their wages and deductions for the tax year.
Independent contractors are usually paid a negotiated amount for performing a job but do not earn benefits because their status is not permanent. The employer issues a Form 1099 for the previous year, which lists the gross amount paid by which the independent contractor can file federal and state income taxes.
Employees are paid the same wages for work assigned to them, generally within a job description. Independent contractors usually are given a project they undertake with little or no supervision. A skilled Connecticut attorney can help draft employment and independent contractor agreements to differentiate between worker statuses.
The Fair Labor Standards Act (FLSA) issued by the U.S. Department of Labor offers some guidelines to avoid employee misclassification. The economic reality test under Sections 29 CFR Parts 780, 788, and 795 discusses the extent of employer control over workers and asks whether workers are enriched by their independent actions. Employers should also ask the following questions:
The FLSA stresses that control exerted by employers over employees is the definitive element for classifying those hired. Supervisors who control what workers do during the workday are likely employers dealing with employees. This could include controlling how a job is performed, what the job entails, and how much the worker will be paid hourly or weekly.
Workers who set their hours to work, determine how they will attack a project, and are paid contingent on finishing a project are likely independent contractors. A knowledgeable lawyer could further advise Connecticut employers on these differences in worker classifications.
Connecticut employees can receive workers’ compensation if they are injured on the job and unemployment benefits if they are laid off, both of which are administered by the state. Social Security benefits are accrued over a lifetime of work and are administered by the federal government.
Independent contractors have no such benefits. Although employers will save money by misidentifying employees as contractors, they can be fined by Connecticut and the federal government for misclassifications. A local attorney should be involved if an employer is unsure how to classify a worker.
As an employer, you may need some guidance about classifying different workers. Treating an employee as an independent contractor can lead to costly fines. It is helpful to provide some workers with contracts defining their status, which an employment lawyer can draft.
At Sparks Law, our Connecticut employee misclassification lawyers are experienced at interpreting state and federal rules concerning labor. We would be happy to answer your questions about employee status, so give us a call today.