Employee or Contractor: There May Not Be A Choice
Lately, several of my business clients have had questions about treating someone who works for them as (or being treated where they plan to work as) an independent contractor or as an employee.
I'll take this opportunity to provide a few pointers:
(1) The choice of employee versus independent contractor isn't always up to the worker and the company. The taxing authorities and other laws have fairly strict requirements about who can be considered an independent contractor and if the work relationship doesn't fit into that paradigm then the relationship must be considered employer/employee.
(2) The different agencies can have different rules about who they will consider an independent contractor.
(3) The IRS has a useful checklist which has been described well by the Ohio State University at this website. In a broad sense, the question comes down to whether the company controls the worker and the workplace or the worker retains control and is merely expected to provide a specific result. Note that the link to the IRS also explains the consequences of misclassifying a worker, which can be very expensive.
(4) For the purposes of determining who must provide workers compensation insurance, the Colorado Department of Labor has a slightly different test, although I have found that in most cases the workers compensation test and the IRS test have the same result.
(5) For the purpose of determining who must be covered by unemployment insurance, I have found that the Colorado Department of Labor has a more stringent requirement to show that a worker is an independent contractor. As the Department website states:
"The definition of employment in CESA 8-70-115 is broad and inclusive, and it is not limited to the common-law relationship of master and servant (as used by the Internal Revenue Service)."
So, it is very common to find that the IRS considers a worker to be an independent contractor but the Department of Labor still considers the worker an employee for the purposes of unemployment insurance. In fact, I have found that without a contract that contains the specific language called for in the statute (CRS 8-70-115) the Department will always consider the worker to be an employee. In the published case I could find on this issue, a local messenger service had to cover all of its messengers even where they had separate jobs or businesses and did messenger service only casually.
Don't risk being found in default and paying fines and penalties. Get a competent attorney to help you do it right the first time.
I'll take this opportunity to provide a few pointers:
(1) The choice of employee versus independent contractor isn't always up to the worker and the company. The taxing authorities and other laws have fairly strict requirements about who can be considered an independent contractor and if the work relationship doesn't fit into that paradigm then the relationship must be considered employer/employee.
(2) The different agencies can have different rules about who they will consider an independent contractor.
(3) The IRS has a useful checklist which has been described well by the Ohio State University at this website. In a broad sense, the question comes down to whether the company controls the worker and the workplace or the worker retains control and is merely expected to provide a specific result. Note that the link to the IRS also explains the consequences of misclassifying a worker, which can be very expensive.
(4) For the purposes of determining who must provide workers compensation insurance, the Colorado Department of Labor has a slightly different test, although I have found that in most cases the workers compensation test and the IRS test have the same result.
(5) For the purpose of determining who must be covered by unemployment insurance, I have found that the Colorado Department of Labor has a more stringent requirement to show that a worker is an independent contractor. As the Department website states:
"The definition of employment in CESA 8-70-115 is broad and inclusive, and it is not limited to the common-law relationship of master and servant (as used by the Internal Revenue Service)."
So, it is very common to find that the IRS considers a worker to be an independent contractor but the Department of Labor still considers the worker an employee for the purposes of unemployment insurance. In fact, I have found that without a contract that contains the specific language called for in the statute (CRS 8-70-115) the Department will always consider the worker to be an employee. In the published case I could find on this issue, a local messenger service had to cover all of its messengers even where they had separate jobs or businesses and did messenger service only casually.
Don't risk being found in default and paying fines and penalties. Get a competent attorney to help you do it right the first time.
Posted by Karen Brady at 4/12/2010 1:00 PM 
Categories: Business Planning
Tags: unemployment insurance employee Colorado Business Lawyer independent contractor business attorney workers compensation insurance
Categories: Business Planning
Tags: unemployment insurance employee Colorado Business Lawyer independent contractor business attorney workers compensation insurance
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