What Does “Independent Contractor” Really Mean?

I was browsing through HR jobs on Craigslist and came across this little nugget:

This is a part time, contract (read 1099) position. We are looking for a Human Resources Manager who will handle all Employee Relations and act as an HR resource for our offices. This position will establish a HR department which supports our companies strategic and business goals. The position will be based out of our corporate offices in Oakland; however occasional travel will be necessary. Some of this work may be done from applicant’s home…

Okay, what’s wrong with this picture?

In one of my very first posts in 2005, I (over)explained what determines an independent contractor. Rather than re-create the wheel, I’m just going to quote myself (or, rather, those I originally quoted back then):

So what makes an independent contractor different from an employee? California Labor Code, Section 3353 states the following: Independent contractor” means any person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished.

I also went on to quote the DLSE site which gives additional factors to consider before establishing a contractor’s status:

  • Whether the person performing services is engaged in an occupation or business distinct from that of the principal;
  • Whether or not the work is a part of the regular business of the principal or alleged employer;
  • Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
  • The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers;
  • Whether the service rendered requires a special skill;
  • The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
  • The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;
  • The length of time for which the services are to be performed;
  • The degree of permanence of the working relationship;
  • The method of payment, whether by time or by the job; and
  • Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative since this is a question of law based on objective tests.

And this time I’m also going to give you the IRS‘ agenda:

Independent Contractor (Self-Employed) or Employee?

It is critical that you, the employer, correctly determine whether the individuals providing services are employees or independent contractors. Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors…

In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.

Common Law Rules

Facts that provide evidence of the degree of control and independence fall into three categories:

  • Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
  • Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
  • Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

So, even though it’s been a few years, the information I gave at the time still stands true:

The questions you need to ask yourself (as an HR professional) are:

  • Are we requiring the consultant to work onsite?
  • Are we requiring the consultant to only work during certain hours?
  • Are we providing the consultant with equipment i.e. a computer?
  • Are we requiring that the consultant manage any employees?
  • Are we paying the consultant through our regular payroll?

If the answer is yes to any of these questions, well, then you’ve just hired yourself an employee.

Oh, and If you said that the job should not be based out of the company’s corporate offices in response to the question above, then you’d be right.

One Reply to “What Does “Independent Contractor” Really Mean?”

  1. That is an illegal job post. Years ago, I worked as a sales agent for an insurance company and they gave us health insurance, a 401k and we worked in their office every day. They had a Treasury Dept ‘gimme’ though, that we were independent contractors. The Microsoft case changed that. Now employers are more careful. But asking an HR head to be an independent contractor? That’s insane. Instead, they should ask for a consultant, with a short term task. But when you work in their offices, you’re an employee. Hope that company gets a few illuminating emails from people, so that they protect themselves from lawsuits based on hiring based on this ad!

Comments are closed.