Chapter 19: IC vs employee Flashcards
Independent Contractor
someone who works for and receives payment from a company but whose working conditions and methods are not controlled by the company
not an employee but may be an agent
ex: property owner who hires an individual to complete a project does not control the details of the way they perform their work
why is misclassification of an employee important
because independent contractors (nationwide) have lost tax revenue
why do independent contractors matter
pays self-employment income taxes, SS, medicare taxes, unemployment taxes
no insurance, vacation, retirement
personally liable for torts and must pay for own injuries
no employment discrimination claims
no overtime
what is the language of your contract:
whether it is an employment contract or independent contractor contract
BUT this does NOT determine whether the IRS or other regulatory agencies find that you have correctly classified your employees or contractors
providing a 1099 tax form does not make an individual an independent contractor
can a worker voluntarily waive employee status and choose to be classified as an independent contractor?
NO,
under the FLSA, a worker is an employee and not an independent contractor if they are (as a matter of economic reality), economically dependent on the employer for work
RULE: control
in order to determine if the individual is an independent contractor or employee, look at the degree of control over the details of the work
IRS, state of TN, Dpt of Labor
determination of status according to the IRS
the IRS has established its own criteria for determining whether a worker is an independent contractor or an employee
the most important factor is the degree of control the business exercises over the worker
determination of status by the US department of labor
US Dpt of Labor introduced a final rule, redefining the “independent contractor” under the FLSA that applies to workers in any industry (effective March 2024)
DOL’s final rule reinstates a multifactor “totality-of-the-circumstances” approach –> the propriety of a worker’s classification depends on whether the worker is economically dependent on the potential employer for work
factors under the DOL rule
1) opportunity for profit or loss depending on managerial skill
2) investments by the worker and the potential employer
3) degree of permanence of the work relationship
4) nature and degree of control over the working relationship
5) extent to which the work performed is an integral part of the potential employer’s business
6) whether the worker uses specialized skills to perform the work and whether those skills contribute to business-like initative –> additonal factors may be considered –> relevant to overall question of economic dependence
example one: Jane delivers flowers, allowed to come into store and return when she wants but the flowers have to be delivered by 5pm, Jane uses her own car, sets her route, and her hours, and is paid per delivery –> she is an independent contractor??
she is an independent contractor
example two: Jane works 8-4, delivers flowers, answers phone, waits on customers, uses store van to make deliveries, paid per hour
she is an employee
third party liability
If Jane is driving down the street and hits someone…
IC: means she would have to be liable –> “employer is not liable for physical harm caused to a third person by the negligent act of an IC in the performance of the contract” –> employer does not have the rights to control the details of an IC’s performance
if employee: company is liable
under the doctrine of respondeat superior (referring to liability)
the employer can be liable for intentional torts an employee commits within the course/scope of employment
Fed Ex example:
drivers were classified as IC, but the drivers were mirco-managed
Fed Ex not only has the right to control but has absolute actual control
Lowe’s example
complaint alledged that Lowe’s had the right to control:
trained by Lowes, comply with production requirements, identify as “installers for Lowe’s”, work Lowe’s uniform, Lowe’s sets the fees to be earned by each home improvement contractor
what are things that are at issue when it comes to rule of control/ employee vs IC
medical insurance, paid sick leave, paid vacay, employee discounts for purchases, short/long term disability coverage, stock purchase plan, matching 401k savings plan
TN Factors for Independent Contractors
