Urban Legends of Employment Law III: Contract Labor Pt. 1

Lisa BoganyAs we continue our discussion regarding the urban legends of employment law I cannot go any further without mentioning “Contract Labor.”  In my opinion, that is the most widely used misnomer in business. The issue is really whether a given worker is an employee or an independent contractor. These are some things to consider when  determining if the term “contract labor” is appropriate.

The Legend: Employers can hire workers on a “contract labor” basis.

The Facts: Employers often believe that they can convert employees into independent contractors merely by hiring them on a “contract labor” basis. Any employer using what it considers to be “contract labor” should ask itself some questions up front:

Is the service provided by the individual in question an integral part of the service the employer provides?  The less able an employer is to offer its primary service without the help of the worker; the more likely it is that he will be considered an employee.

What opportunity for profit or loss is there for the worker? What is the worker investing?  An employee is paid for her time. She would not be expected to provide her own workplace, materials, tools, and supplies, or otherwise to invest her own money in the business.

Is the compensation negotiated, or is it imposed by the employer?  A true independent contractor’s main concern is his own bottom line, not that of the employer. There is always an element of negotiation in any bona fide contract for services.

Does the individual provide her services to the public at large? Does she advertise her services?  If a person holds herself out to the public as self-employed and available for work for any customer with whom she can negotiate an acceptable price, she is likely to be held as an independent contractor.

Is there a non-competition agreement?  Generally, non-competition agreements and independent contractors do not go hand-in-hand. These types of provisions in a contract are strongly indicative of an employment relationship, mostly because it proves that the services in question are directly related to the primary service provided by the employer.

Does the worker provide his services on a continuous basis?  Independent contractors generally perform their work one job at a time and are paid on the same basis.

Is the worker required to provide services under the employer’s name? Does he represent himself to the public as being an employee of the employer? If the general public would perceive the person to be a representative of the employer because of business cards, uniforms, etc.., this would be more indicative of an employee than an independent contractor. An employee performs services on behalf of the employer for customers of the employer. An independent contractor performs services on his own behalf for his own customers.

As you can see, defining an Independent Contractor can be very involved.  We will continue our discussion next time with more factors that are critical in determining contractor vs. employee status.

Lisa Bogany is a Senior Business Consultant for Workforce Solutions in the Houston metropolitan area. She has over five years of experience in workforce development, primarily working with employers, and over 10 years experience in small business entrepreneurship.



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