From Nina B. Ries the Huffington Post —
While factors vary from state to state, some overarching themes include:
- The line of work (more specifically, whether the independent contractor’s business is the same as the company’s, or whether it is a special service that is being farmed out; accounting, legal and public relations are common examples)
- Special skills required for the work and authority and control exerted by the principal (in other words, whether the person is self-directed, or reports to someone)
- Whether the contractor has other clients for whom she performs this type of work
- The duration and permanence of the relationship (in general, independent contractors are retained for a special project or for a set term, whereas employees continuously service the company’s needs)
- Structure of the pay
- The source of instrumentalities for the performance of the work (such as whether supplies, materials, hardware provided by company or by the contractor)
- Facts specific to the independent contractor (whether the outside consultant is a separate legal entity with its own offices, equipment, EIN, business license, and bank accounts, or whether she is an individual doing the same things in the same manner as when she was employed, but receiving a 1099 at year-end instead of a W-2).
In short, the change in classification cannot be an end-run around taxes or other legal obligations, and the company must be able to justify the reclassification to independent contractor by some change to the job function, responsibilities, oversight and site.
Read the full story at Reclassifying Employees: Risky Business
- The Tax Risks of Misclassifying Employees – The National Law Review (natlawreview.com)
- Be cautious about reclassifying existing employees (gotoicon.com)
- Settle Your Worker Classification Problems with No Penalties (wisebread.com)