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Independent Contractor Or Employee?

By David B. Schaumann, Esquire

Over the last several years federal and state agencies have targeted employers on the issue of whether independent contractors should be placed on the payroll as regular employees. The federal Department of Labor in recent years has recovered more than 1.3 billion dollars in back wages from employers for invalid designations. Construction, home, healthcare, staffing, transportation, security and hospitality are only a few of the industries that have been targeted.

Employers are in a difficult position because there has been no specific adopted definition for who is an independent contractor. Recently, a federal court in Pennsylvania issued a decision which examined the federal “economic realities test.” Whether an individual is an employee is dependent on:

  • The degree to which the person is independent or is controlled by the employer with respect to the way the work is done;
  • The individual’s opportunity for profit or loss;
  • The individual’s investment in the facilities and equipment of the business;
  • The permanency and length of the relationship between the business and the individual;
  • The degree of skill needed to do the person’s work; and,
  • If, and how much, the work performed by the individual is a major part of the employer’s business.

This test will put new pressure on employers who historically have used an independent contractor designation. The question of whether a worker is properly classified is rarely clear-cut. It is a fact-intensive inquiry that will depend on the specific circumstances of each case. One thing is for certain: do not assume that a worker is properly classified because the individual has an independent contractor agreement or goes by the term “contractor.” Workers cannot waive their right to be correctly classified under the law, and the cost of misclassification can be significant.

Attorney Schaumann  will be happy to discuss this or any other employment issue with you.