Gerard L. has asked us: "I am working as an independent contractor acting through  a corporation but I’m being supervised and controlled like an employee.  My question is – am I an employee or an independent contractor?"

We cannot, of course, provide legal advice in this blog, since questions such as Gerard’s implicate a complicated, fact-based analysis unique to each situation.  However, Gerard’s question is general enough that we can quickly review this complex area of law.   

The workplace of the last century is gone forever. More and more employers are classifying people in the workplace as “independent contractors,” and not as “employees,” because

(1) independent contractors are cheaper,

(2) it is not customary for employers to provide independent contractors with benefits such as paid vacation days, pension plans, and employer-sponsored health insurance;

(3) an employer need not withhold federal and state income taxes and social security tax on compensation for independent contractors, and are not required to pay federal and state unemployment insurance and the employer share of social security taxes; and

(4) independent contractors are generally more easily terminated because they are not covered by the civil rights laws — yet.

But employers must be sure that workers are true independent contractors and not employees who are called independent contractors, because there have been major successful lawsuits by employees who have been mislabeled as independent contractors, and actions by governmental agencies such as departments of labor.  The difference is not easy to determine – there is no “bright line” test, and courts have used various tests reviewing a variety of factors to distinguish employees from independent contractors. 

The Supreme Court Test

For example, the Supreme Court established a thirteen-point test to determine whether a hired party is an “employee.” This test looks at the following factors:

—  the hiring party’s right to control the manner and means by which the product is made or the service rendered;

—  the skills required for the job;

—  the source of the instrumentalities and tools;

—  the physical location of the parties;

—  the duration of the relationship between the parties;

— whether the hiring party has a right to assign additional projects;

— the extent of the hired party’s discretion over when and how long to work;

— the method of payment;

—  the hired party’s role in hiring and paying assistants;

— whether the work is part of the regular business of the hiring party;

—  whether the hiring party is in the business;

—  the provision of employee benefits; and

— the tax treatment of the hired party.

The IRS Test

The IRS, however, has its own test –  the more control over the worker, the more likely that the worker is an employee rather than an independent contractor. 

For example, control may exists where a worker must comply with instructions about when, where, and how he is to work; there is training of a worker by teaming him with an experienced employee (which may indicate that the employer wants services done in a particular manner or method); the worker’s services must be rendered personally; the business hires, supervises and pays assistants for the worker; there is a continuing relationship; the employer has the right to fire the worker; there is a requirement that the work is to be performed on the premises, the service is to be performed in a specific order or sequence, and/or there must be regular or written reports; and where the employer supplies tools, material, and equipment. 

On the other hand, when an employer pays a worker by the job or on a commission basis, it indicates lack of control, suggesting an independent contractor relationship. If a worker invests in facilities that are not maintained by employees (i.e., renting his own office), realizes a profit or loss, performs more than minimal services for a number of unrelated businesses at the same time, and makes his services available to the general public on a regular basis, this suggests that he is an independent contractor.  

Once again, this should not be considered legal advice but merely a summary of the law.  For legal advice to be given, someone like Gerard must seek legal counsel, who can analyze Gerard’s specific fact situation in light of the prevailing law.