5 Ways to Clarify Employee vs. Contractor Classifications
Attorney L. Reed Bloodworth is managing partner of Bloodworth Law, with offices in Orlando and Winter Haven, Florida. Reed explains 5 ways to clarify between an employee and a contractor.
#1 Written Contract
Number One is to have an actual written contract with your independent contractors.
Legally, a contract can be oral. So there’s no rule that says, as a bright line, that if there’s no written agreement you can’t be an independent contractor. That’s not what the law says.
What the law says is one of the things that helps prove that someone is legitimately an independent contractor, is if that contract is in writing, as opposed to being verbal. So it’s better to have it in writing.
#2 Contract Clearly Defines Scope of Work
The Second Thing is to make sure that the scope of work is clearly defined in that contract in as much detail as possible. And the most important factor in that scope of work is who is in control of the time, the place, and the manner of performing that work?
So make sure that the scope of work and the time, place, and manner in which the work is being performed are clearly set forth in the contract, and that the contractor, not the company retaining them, has control over those factors to the extent possible.
The more control the contractor has over those factors, the more likely it is that that contractor is legitimately classified as an independent contractor and not an employee.
#3 Review Government Policies
The Third Thing is to review those classifications with the latest Department of Labor and IRS guidance on a regular basis.
The standards for what is and is not an employee is technically different, depending on what law you’re looking at:
- What constitutes an employee for workers’ comp purposes?
- What constitutes an employee for the purposes of minimum wage and overtime?
- What constitutes an employee for the purposes of harassment and discrimination? And,
- What constitutes an employee for the purposes of the internal revenue code?
They are all different standards, but they are very, very close to one another.
Looking at guidance from any of those different sources is useful for helping make sure that you’ve shored it up with all of those.
IRS and Department of Labor
The IRS, in particular, has a very detailed questionnaire that you can use as a worksheet to figure out if someone is properly classified or not, and so that’s a great place to start.
The Department of Labor also provides some guidance on that.
Reviewing these policies and what they do and reviewing your personnel and how they’re controlled is a very good way to ensure your business is properly classifying its employees and independent contractors. Also important, is to do this review regularly, not just on the front end.
Employees Work Indefinitely
If you have a written contract, it’s not something that’s going to last forever. It has an end date, and that is one of the factors. If somebody is retained for a year, say, as opposed to indefinitely, that is more indicative of a contractor.
So, if it’s an annual contract, which it probably should be or something that’s periodically renewed, then that’s a good time to review the guidance from the IRS and the Department of Labor to make sure that that classification is still valid.
#4 Consult Professionals
Fourth, work with both an attorney and an accountant.
The accountant is more likely to be up to speed on the IRS issues. The attorney is more likely to be up to speed on the other employment statute issues.
So for any special cases, you can save yourself a lot of trouble if you just ask for advice on the front end, as opposed to asking for advice after you get served with a lawsuit, which will cost many thousands of dollars.
In addition, if you’ve got the advice of an attorney and/or an accountant on the front end and followed that advice in making your decision to classify someone, that could help you save money even if you were wrong because showing that level of effort to do it right helps reduce your damages in the event of a lawsuit.
#5 Hire as an Employee
And finally, Number Five is, when in doubt, just hire them as an employee. It’s not worth the risk.
Legal consultations with an employment attorney to review your employee policies and independent contractor contracts can ensure that you’re in compliance with Florida employment laws.
Bloodworth Law serves as legal counsel for Florida businesses of all sizes across the state. Our Employment Law Team can work with you remotely, via Zoom, or in the office with the appropriate safety measures taken to protect you as we help you with your legal issues.
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