The classification of workers as independent contractors is fraught with potential disaster. A misclassification could ruin the company financially and, potentially, its officers and owners. The rules are complex and sometimes contradictory.
In addition to the IRS and state taxing authorities, state labor agencies may examine the company’s practices.
Traditionally, the key test on whether a worker is truly an independent contractor or is merely an employee who has been misclassified as such, involves the issue of control: Are the services of the worker subject to the taxpayer’s (company’s) will and control over what must be done and how it must be accomplished?
However, another equally important consideration is whether the company contracted with an independent business owned by the worker, rather than the worker directly. This is becoming a much more important factor than in the past.
Remember the “duck” theory: If it walks like a duck, swims like a duck, looks like a duck and quacks like a duck, it is a duck, no matter what you call it.
Do not treat someone who is obviously an employee as an independent contractor. Treating receptionists, secretaries, office managers, cooks, wait staff and office personnel as independent contractors will never fly.
Also, do not treat temporary or new hires as independent contractors during a trial period. The focus is on the tests described above, not the number of hours worked or the duration of employment.
Do not try to force a worker into independent contractor status, because if the worker quits and files for unemployment, expect a big-time legal problems from the state paying the unemployment benefits.