In my practice, the question of classification of service providers as employees or independent contractors has come up with increasing frequency. This probably results from the increasing amount of freelancing in the economy in recent years. It’s also been in the mainstream news recently, with highly publicized actions against Uber and Lyft for alleged misclassification of their drivers. A classification of a worker as a contractor is generally preferred by companies, as it eliminates a wide range of costs and legal protections available only to employees, e.g., unemployment insurance, workers compensation, tax withholding, minimum wage and overtime laws. Because of this, federal and state regulators are increasingly scrutinizing classification issues, and employers need to be aware of this and be careful and conservative in their classification decisions.
The law in this area is highly fact-sensitive, which is the type of law that non-lawyers hate because it doesn’t provide definitive guidance, but you can see how the system would be gamed if there were objective standards. For example, if a work week of less than 40 hours automatically made you a contractor, you’d see a lot of people being hired for 39 hours per week. So, the IRS and state regulators list various factors to consider in making a classification determination, none of which individually are determinative. This is a useful chart listing various factors that tend to be found among employees or contractors, respectively. The key thing to remember is that job title is irrelevant; it’s all about the substance of the working relationship and the degree to which the details of the service provider’s performance of the work is controlled by the company. Also, the fact that the company and the service provider agree on a particular classification isn’t relevant to the analysis.
