Independent contractors can be an invaluable addition to your workforce. But how can you be sure the person you’re contracting with is truly independent?
It’s not simply a matter of mutual agreement. You can sign a contract with someone specifically creating an independent contractor relationship that won’t hold up in court because the person is a common law employee.
Misclassifying a common law employee as an independent contractor is a major liability, exposing your business to potential lawsuits, penalties, back taxes, and audits. It can also damage employee productivity and morale. The longer the errors go on, the bigger the risk grows.
Before you contract with any worker, you need to know the difference between a common law employee and an independent contractor.
Overview: What is a common law employee?
The Internal Revenue Service (IRS) defines a common law employee as “anyone who performs services for you … if you can control what will be done and how it will be done.”
If you’re thinking the last half of that definition could use a little fleshing out, you have a very good point. Anytime you hire someone to do work, you control some aspects of “what will be done and how it will be done.” You don’t just hire a kid to mow any lawn on the block, right?
So, how much control can you exert before a worker becomes an employee?
Common law employee vs. independent contractor: What’s the difference?
The difference between independent contractor and common law employee rides on the control and independence evidenced in the relationship. You may be accustomed to taking a very hands-on approach to managing employees. Contractors require a different approach.
This is important because common law employees must be