The misclassification of employees as independent contractors exposes employers to significant liability, including back taxes, penalties and possible claims by employees for unpaid overtime wages and attorney fees. In a recent extraordinary example, shipping giant UPS agreed to pay $12.8 million to settle a class action lawsuit over allegedly misclassifying delivery drivers as independent contractors. While your company’s exposure might not be that great, there are several important steps you should take to minimize the risk.
First, evaluate the classification status of your workers. The presumption is that they will be considered employees, so carefully evaluate whether they meet the test for an independent contractor. While there is no single test to determine whether a worker is an independent contractor or an employee – the IRS, Department of Labor and Oregon agencies each use a different test – there are two common threads among all of the tests: control and financial dependence. For example, the more control an employer has over the means and manner in which individuals perform their work, the more likely it is that an employment relationship exists. Likewise, the more financially dependent individuals are on work provided by the employer, the more likely it is that those workers will be considered employees.
Second, use written contracts with your independent contractors, and incorporate as many independent contractor factors as possible into those contracts. For instance, you might specify that the worker is responsible for worker’s compensation coverage and business and travel expenses, and is free to determine whether and when to provide services to the employer. The agreement might also permit the worker to provide services to other businesses.
Finally, avoid actions that are inconsistent with the independent contractor relationship, such as referring to the worker as an employee and subjecting the worker to your leave and performance review policies. Remember: if you treat the worker as an employee, the government probably will too.
If you have questions about independent contractors, feel free to contact Hershner Hunter's Employment Law attorneys.
