Independent Contractor vs EE, How Can I Tell?

In this six-part series, we take a look at employee classification. When looking to hire for your business, it’s important to look at whether you’ll be taking on an independent contractor or a traditional employee. You’ll also need to decide whether the job is going to be FLSA Exempt or nonexempt and, finally, whether you’re hiring for a full-time or part-time position.

In Part 1, we discuss why people misclassify employees and outline the ways we distinguish between employees and independent contractors.

Why is employee classification important? Consider this: Depending on the state, 10% to 20% of employers misclassify at least one employee, which has huge financial repercussions and is the most likely Department of Labor complaint a small business will face.

Independent contractors (not to be confused with employees under contract) are employees who have contractual agreements to complete jobs and have complete control over their job performance. They reduce human resources, payroll, bookkeeping expenses associated with employees, and they reduce the overall number of employees (which eliminates the employer’s need to comply with certain statutes).

The National Labor Relations Act (NLRA) uses the Common Law Agency Test to decide whether a worker is an employee or an independent contractor.

Among the factors which indicate the existence of an employment relationship includes:

• An employer controls the details of work performance.
• An employer provides work supplies and a place to work.
• A permanent working arrangement exists with the employer that will ordinarily continue as long as performance is satisfactory.

Among the factors which indicate the existence of an independent contractor relationship includes:

• Workers are engaged in a separate business or occupation, particularly if they are professionals.
• A specialist does the job without supervision at the workplace.
• The worker defines the time required for a workday rather than abiding by a typical company workday.
• The job requires a high level of skill.
• The employer pays the worker for each, individual job completed.
• The worker is engaged in a personally owned business.

In Part 2, we dive into the two other tests which the NLRA uses to determine the employer-worker relationship: the FLSA Test and the Discrimination Statutes Test. Thank you for tuning in.

About the author, Rhamy

Rhamy grew up watching and working with his mother and grandmother in the senior insurance market. This familiarity with the struggles faced by people trying to navigate the incredibly complicated and heavily regulated healthcare market led him to start Poplar Financial while working on his degree at the University of Memphis. After completing his MBA and Bachelors in Finance and Economics, Rhamy guided Poplar Financial through the disruptive opportunity that is the Affordable Care Act. Since then Poplar Financial has received numerous awards from major insurance carriers and has completed its fourth year in a row of doubling in size. Now his team focuses on the processes around human resources and specializes in providing companies with between 20 and 1000 employees with the payroll, benefits, and HR needs.