Are You Hiring an Independent Contractor or an Employee?

Employees and independent contractors are different animals.  Improperly classifying employees as independent contractors can result in significant legal consequences.  When a person is hired they are presumed to be an employee.  It is not enough to simply label someone as an independent contractor, certain legal criteria must be met.  Generally, independent contractors exercise a higher level of control over the work to be performed,  the manner it is performed and may freely accept or reject work.  Control over the person for hire is key to this analysis.

The Colorado Wage Act (CWA) defines an “employee” as any person performing labor or services for the benefit of an employer in which the employer may command when, where, and how much labor or services will be performed.  The Fair Labor Standards Act (FLSA) defines “employee” as “any person acting directly or indirectly in the interest of an employer in relation to an employee.”

Several factors are used to determine the status of an individual under the FLSA: control exerted by the employer over the worker, the worker’s opportunity for profit or loss, the worker’s investment in the business, the permanency of the working relationship, skill required to perform the work, and the extent to which the work is an integral part of the employer’s business. An independent contractor is not subject to the FLSA requirements or the CWA. Therefore, someone employing an independent contractor need not provide workers’ compensation insurance, deduct payroll taxes, or pay overtime. Further, an independent contractor cannot claim workers’ compensation or wrongful termination.

There are numerous benefits of employing an independent contractor instead of an employee. However, the misclassification of a worker can be problematic and costly. To lower payroll costs or expenses an employer might misclassify an employee as an independent contractor.  Misclassification can open an employer up to additional liability including governmental audits, penalties and lawsuits.  Employers can protect themselves from such liability associated with misclassification by refining their hiring practices and procedures. Simply requiring a signed independent contractor agreement will not suffice. The actual performance of services will be analyzed.  If litigation occurs, the Court will look at the totality of the circumstances surrounding the services performed.

For more information about Independent Contractors and Employee Law, contact Miller|Kabler, P.C. at 720-306-7733 or visit our website at www.millerkabler.com

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