Urban Legends of Employment Law III: Contract Labor Pt. 2

Lisa BoganyIf you were tracking with us last week, you’ve begun the process of determining whether or not you need an “independent contractor” or an employee. There are still a few additional details you must hammer out before making your final decision.

Is the worker required to work a certain schedule, to notify the employer if he will not come to work, or to get the employer’s approval for any helpers who are hired? Beyond the right to contractually specify that anyone providing services on a project must be properly licensed, the employer should have little interest in the independent contractor hiring help or how they allocate their time. The more control the employer exercises over the hours of the worker, the greater the risk is that the situation will be considered an employee instead of a contractor.

How is payment for services rendered? If the client pays the employer, and the employer pays the worker either by the hour, salary, or commission, the worker looks more like an employee than an independent contractor. If the employer pays the contract price for work completed, the worker would appear to be an independent contractor. If the client pays the worker, and the worker remits an agreed-upon fee or percentage to the employer that would look more like an independent contractor situation.

Does the employer retain the right to dictate how the work should be done? An independent contractor derives his “assignments” from the terms of the contract and determines what his daily tasks will be in fulfillment of those “assignments.” When an employer contracts for outside services, it is normally interested in the end results, not in the details of how the contractor performs the work.

Who is providing insurance coverage? Are other benefits involved? If the employer provides liability insurance for the workers, the situation would likely be held to be employment, since the workers would not have ordinary business liability as a risk of doing business. The power to award benefits carries with it the power to deny them, and that kind of power is exercised by employers, not contractors.

How is the worker promoting their services? Independent businesspeople provide their own advertising. If they advertise as being associated with a particular business, the risk is that they may be considered employees.

Can the worker be fired at will? A business that has the right to fire a worker at will is generally considered the employer of that worker. An independent contractor will usually have contractual recourse if fired before completion of the work.

We have covered the main factors Texas Workforce Commission (TWC) considers when determining whether certain workers are employees or independent contractors. No one factor will determine the entire case, and not every case will involve all factors. Cases are decided on an individual basis after weighing all factors present. Employers in doubt over their workers are encouraged to request a ruling on the status of such individuals from their local TWC tax office.

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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