Many companies use independent contractors based on their business needs or industry practice. This arrangement is often one that benefits the company and the independent contractor. Too often, however, employers misclassify a part time or occasional employee as an independent contractor or freelancer, and, by doing so, subject their business to substantial, unanticipated liability.
How to tell the difference. There are a variety of different tests under the many employment laws to determine who is an independent contractor and who is an employee. Most of these tests revolve around (1) who has the control over the work that is being done by the individual in question and (2) the economic realities of the relationship. Generally, it is risky to classify individuals as independent contractors when they are directly involved in the services your business provides to its customers.
Independent Contractor Agreements. One way to strengthen and memorialize the status of an individual as an independent contractor or freelancer is to enter in to a contract with that person memorializing the nature of the relationship. This demonstrates that the two parties are treating the relationship as an “arms-length” business relationship, rather than an employee relationship. The contract can also memorialize the control that the independent contractor has over the work that he or she is being contracted to perform, as well as other elements that will make the relationship more likely to be upheld as that of an independent contract under the various employment laws.