Employers sometimes either intentionally or negligently misclassify workers as independent contractors when they are actually employees. This misclassification wrongfully denies these employees worker’s compensation or unemployment benefits if they become injured. It also puts the employee at risk of tax consequences if he or she did not receive an IRS form 1099 at the end of the year and did not declare his or her income on his or her income tax return. Employers do not withhold federal, state, and local taxes from wages paid to independent contractors, and independent contractors are not included in employer benefit programs and are exempt from laws regarding wages and hours, discrimination, and unemployment insurance. All of this saves the employer money, but is a great incentive for an employer to misclassify workers as independent contractors when they are actually employees.
Every state, including New Hampshire and Vermont, and the federal government has rules for whether a worker is an employee or an independent contractor. And, within each state different agencies have different classification rules. For example, whether a person is an independent contractor or an employee may differ under worker’s compensation and unemployment compensation agency rules.
In an overall sense, the determination is based on the degree of control that the business has over the worker. The general rule is that a worker is an independent contractor if the employer has the right to control or direct only the result of the work, not what will be done or how it will be done. The IRS has a 20 factor test, while state agencies have other tests. Some of the factors include whether the worker has an independent business name and works for other persons at the same time, whether the worker has to perform work in a sequence set by the employer, and whether the worker has made an investment in the facilities or equipment used to perform the services. None of these factors are controlling by themselves. Rather, all of the factors in the test get looked at and sometimes the determination is unclear and can be very subjective.
This law office has been helping business owners and workers through the process of determining whether a workers are independent contractors or employees and litigating issues for both employers and workers when someone has been incorrectly classified as an independent contractor or an employee for nearly 30 years.
If your company or you need legal assistance in this situation, call our office at 800-909-LAWS (5297) or email us. Because all cases are subject to a statute of limitations or contract clauses that may limit the dates within which a lawsuit may be brought, call without delay to ensure you do not waive any of your rights.