Factors Considered in Determining Independent Contractor v. Employee
LAW OFFICES OF MICHAEL D. STEWART
In Florida, there are a number of factors which must be considered by employers in determining whether to treat a worker as an independent contractor or an employee for payment and tax purposes.
For employees, the employer is generally responsible for withholding income taxes, social security and Medicare taxes, and unemployment taxes on wages paid to employees. An independent contractor, on the other hand, does not require the same withholding and responsibilities for the employer.
Generally, an employee is hired by an employer to perform the work required by the employer, and the employer determines the method of how this work is achieved. The employer will train the employee on how to perform the job, will dictate the hours to be worked, and the methods of work. The employer will generally provide the tools necessary for performing the work. The employee will generally only work for this one employer.
An independent contractor, on the other hand, generally controls their own method of work. They are hired for individual jobs. The independent contractor has his or her own company, has his or her own tools, bills the employer for work performed, and is generally not controlled by the employer.
Employers should be very careful in determining how they label a worker. Failing to treat a worker as an employee when they should have been classified as such can result in violations under the Fair Labor Standards Act. Standards to be taken into account under the FSLA include:
1) The extent the services rendered are an integral part of the employers’ business,
2) the permanency of the relationship between employer and worker,
3) the amount of the alleged contractor’s investment in facilities and equipment,
4) the nature and degree of control by the employer,
5) the alleged contractors opportunities for profit and loss,
6) the amount of initiative, judgment or foresight in open market competition with others required for the success of the independent contractor,
7) the degree of independence in the operation of its business of the independent contractor.
Additionally, according to the Florida Workers’ Compensation Act, the test for independent contractor versus employee is as follows:
A worker is an independent contractor if he or she meets four of the following factors:
1. Maintains a separate business with his or her own work facility, truck, equipment, materials or similar accommodations,
2. Holds or has applied for a federal employer identification number (unless the independent contractor is a sole proprietor who isn’t required to have a federal employer ID number),
3. Compensation for services rendered or work performed is paid to a business rather than an individual,
4. Holds one or more bank accounts in the name of the business entity
for purposes of paying business expenses,
5. Performs work for customers other than the employer in question, and does so without completing an employment application or process,
6. Receives compensation for work or services rendered on a competitive-bid basis, or does the work based on a contractual agreement (unless the contract expressly states that an employment relationship exists).
When in doubt, “the controlling factor is the controlling factor.” Debell v. Piermatteo (Case Nos. 4D07-1748, 4D07-1918, and 4D07-2910, Fla. 5th DCA, 2008).
Further, the IRS has its own 20 party test which looks at:
1. Is required to comply with the employer’s instructions about the work.
2. Receives training from the employer.
3. Provides services that are integrated into the business.
4. Provides services that must be rendered personally.
5. Hires, supervises and pays assistants for the employer.
6. Has a continuing relationship with the employer.
7. Follows set hours of work.
8. Works full-time for the employer.
9. Works on the employer’s premises.
10. Does the work in a sequence set by the employer.
11. Submits regular reports to the employer.
12. Receives payments of regular amounts at set intervals.
13. Receives payments for business or traveling expenses.
14. Relies on the employer to furnish tools and materials.
15. Lacks a major investment in facilities used to perform the service.
16. Cannot make a profit or suffer a loss from the services.
17. Works for one employer at a time.
18. Does not offer services to the general public.
19. Can be fired.
20. Can quit at any time without liability.