Independent Contractors or Employees:
You Decide
Joan slipped and fell while on the job. After a few hours in the emergency room and a cast on her leg, her employer sent her medical bills to his workers' comp insurance company for payment. Joan was denied coverage because she had signed a contract that named her as an independent contractor and not an employee.
An independent contractor is defined as any person who renders service in turn for payment to reach a specific result, and is under the control of the principal only as to the result of the work, not as to how the result is accomplished. An employee, however, is controlled by the employer on how his/her results are accomplished on the job.
While the difference between the two terms is small, the importance of correctly classifying your workers is extremely significant to the livelihood of your business.
One important distinction between an independent contractor and an employee is that an employer or contractor is not liable for the negligence of employees. Independent contractor status also eliminates paperwork and administrative expenses of withholding taxes and other payroll deductions for the employer, and workers' comp insurance.
Generally, the legal status of a worker is determined by the amount of control exercised over the work being done. If the hiring firm controls or has the ability to control how the work gets done, the worker is considered an employee. However, if the hiring firm can only exercise control over the results of the work, then the worker is usually considered an independent contractor.
Who Are Employees?
Workers are generally considered employees when:
The employer has the right to control the manner and means of accomplishing the results.
The employer retains the right to terminate the relationship at will.
The worker's occupation is similar to the employer's type of work.
The employer provides tools and a place to work.
The worker has the right to hire and fire others.
Hourly and piece rate payments are paid.
Who Are Contractors?
Workers are generally considered independent contractors when:
The worker's occupation is distinctly different from the employer's type of work.
No supervision exists.
Tools or workplace are provided by the worker.
Because legal, tax, and insurance issues are involved, business owners should seek appropriate professional advice before assuming that an "independent contractor" status will stand up to legal challenges.
We are pleased to provide this "Bulletin" as a service to you. While this information was obtained from sources believed to be reliable, its accuracy is not guaranteed. It does not change or alter insurance contracts or coverages.
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