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How Do Independent Contractors Affect the Liability of a Company?

by James M. Hoffmann on Jul. 21, 2014

Employment Workers' Compensation Accident & Injury Employment 

Summary: Since independent contractors are considered self-employed individuals, they should report their income and pay the appropriate taxes on their own. The company hiring them is not required to provide benefits or follow minimum wage laws.

Individuals like contractors, subcontractors, lawyers, auctioneers, and public stenographers who have an independent business or profession are not considered employees. The status of each individual is dealt on a case-to-case basis. An individual is generally considered an independent contractor if the payer is limited to regulating the result of the job and does not include the means of carrying it out.

Independent contractors cannot receive workers’ compensation and State law does not require employers to acquire coverage for these contractors. However, employees may be misclassified as independent contractors by some employers to circumvent rules on paying workers’ compensation premiums and payroll taxes. Employers may attempt to deny that an individual is an employee if the individual is injured. However, the conditions of the work of the individual will determine whether the individual is an employee or not.

Absence of Management and Direction

Services provided by independent contractors are based on a written or unwritten contract without being directly managed by the payer on how the work is done. Independent contractors decide how to provide the service, who will provide it, and the means of completing it. The crucial point is that independent contractors are not managed directly by the company that hires them since they act independently.

Commissioning and Payment

Independent contractors do not need to go through an interview to be formally commissioned by the company. Independent contractors are typically paid for the job while employees receive hourly wages or salaries.

Equipment Used

The equipment used by the individual is another way to determine whether the individual is an employee or independent contractor. Independent contractors normally provide their own equipment for the job while the employer provides the equipment used by the employee.

Nature of Work and Training

The nature of the work of an individual is another way to differentiate employees from independent contractors. When the nature of the work requires specialization and the individual works on one job, the individual may be an independent contractor. Independent contractors may also work for two or more companies at the same time. However, when the individual is provided training and is given regular duties by one company, the individual can be considered as an employee.

Written Contracts

Written contracts also indicate whether the individual is an independent contractor or not. However, it may not be enough to consider the individual as an independent contractor.

The workers’ compensation board of the state will take into consideration the preceding factors when evaluating the employment status of an individual and determine whether the individual is an employee or an independent contractor.

Independent contractors are not eligible to receive workers’ compensation coverage, which makes it essential to classify them properly since it will have an effect on the financial status of a company. For more information on the matter, you should personally speak with an experienced workers' compensation attorney.

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