With challenges to the economy, companies are looking for every way possible to save money. A potential risk for employers is to mischaracterize an employee as an independent contractor, which may save payroll taxes in the short term but may lead to penalties on such taxes as well as other inadvertent violations of worker’s compensation laws, FMLA, etc, which each hold separate penalties for violation.
There are also state law implications, which vary by state so you may want to consult an attorney in your particular state as to that state’s definitions. Focusing purely on federal issues, the IRS previously had a 20-part test to evaluate whether a worker is an employee or independent contractor.
However, the new and improved IRS test focuses on three areas: (1) behavioral control, (2) financial control, and (3) the type of relationship.
1. Behavior control addresses the amount of instruction given to a worker, such as work hours, specific job duties, and training.
2. Financial control addresses the extent to which a worker can realize a profit or loss or seek reimbursement of business expenses.
3. The third type of control is the type of relationship. Factors include the presence or absence of a written agreement and the permanency of the relationship.
Call today to speak with an employment lawyer representing businesses and business owners and can answer specific questions in more detail concerning your business. They can also document employment agreements or properly document independent contractor agreements should the workers qualify as independent contractors.
Hon. Jay Young (Ret.) is a retired judicial officer with decades of experience presiding over complex civil litigation matters. Following a distinguished career on the bench, Judge Young now serves as a mediator, arbitrator, and court‑appointed special master, and discovery referee. Judge Young brings a disciplined, impartial, and results‑oriented approach to dispute resolution. Judge Young is based in Nevada and accepts appointments statewide and nationally, subject to agreement or court order. He can be reached at 855.777.4557 or info@armadr.com
Known for judicial temperament, analytical rigor, and practical problem‑solving, Judge Young assists litigants and counsel in resolving high‑stakes disputes efficiently and with integrity and employing best practices. He is recognized by U.S. News and World Report’s publication Best Lawyers as Arbitration Lawyer of the Year.