A while back, I got this question: Can we still use independent contractors for our business?
This answer is certainly yes. But you wouldn’t know it from all the headlines of late.
And you wouldn’t think so by the attacks on the use of independent contractors by government agencies. Take this quote from the U.S. Department of Labor page on the subject:
The misclassification of employees as independent contractors presents one of the most serious problems facing affected workers, employers and the entire economy.
Indeed, the DOL and the IRS have a memorandum of understanding between the two agencies to help “reduce the incidence of misclassification of employees as independent contractors.”
In Connecticut, we’ve had a Joint Enforcement Commission on Employee Misclassification in place for several years.
And more than that, a significant Connecticut Supreme Court case (Standard Oil of Connecticut v. Administrator, Unemployment Compensation Act) should be decided this year on the subject.
I talked about that case in a lengthy post back in August 2015. Oral argument on that case was held back in October 2015.
So what’s an employer to do in the meantime? Here are three things.
- Understand the ABC Test. What is it? Well, it’s not as easy as ABC, but in Connecticut, it’s the controlling test to determine whether someone is an employee or independent contractor according to the CTDOL.
According to the CTDOL: A. The individual must be free from direction and control (work independently) in connection with the performance of the service, both under his or her contract of hire and in fact; B. The individual’s service must be performed either outside the usual course of business of the employer or outside all the employer’s places of business; and C. The individual must be customarily engaged in an independently established trade, occupation, profession or business of the same nature as the service performed.
But don’t forget: the USDOL uses an “economic realities” test. Try to determine whether your relationship fits BOTH tests.
- Prepare a contract. A contract isn’t going to solve all the issues of whether someone is an independent contractor or employee, but it may solve some of them. A contract can outline the responsibilities of the contractor and set up the fences that the relationship shouldn’t cross.
For example, the contract may dictate a project to be completed, but won’t dictate how it should be done or the hours which the contractor has to work. Or it could say that the contractor must bring their own tools to the project. And please, get your contract reviewed by a lawyer.
- Use independent contractors sparingly. This is a general rule and there are exceptions to it, but when your workforce is seemingly made up of independent contractors (see: Uber), you’re more susceptible to attack. If you’re not sure, I like Jon Hyman’s “duck” rule:
Despite these specific criteria, I have reached the conclusion that the best test to determine whether a worker is an employee or an independent contractor is the “duck” test—if it looks like an employee, acts like an employee, and is treated like an employee, then it’s an employee
Independent contractor relationship remain under attack, but don’t be afraid to use them in legitimate purposes.
And finally, as the legislature considers the issues this year, I’m reminded of a quote from a Hartford Business Journal column in 2010 that said this:
By characterizing all of us that depend on a flexible workforce as abusers of the system who purposely “misclassify” workers, the state has the potential to destroy a lot of businesses. And, it does a tremendous disservice to the tens of thousands of businesses that rely on us to provide the flexibility, service and responsiveness that independent contractors offer us.
The point is this: Not all independent contractors are “misclassified” employees. It is a bad business decision for the state of Connecticut to wage some kind of war on every small business that relies on independent contractors to get the job done.