Employee or Independent Contractor?
By Anthony Bevilacqua
Recently passed legislation is making this question all the more important when a business engages outside services to do work on its behalf. The construction industry has been the focus for much of this question, but any business in any industry must be cautious when considering the use of independent contractors.
Determining whether someone is an employee or independent contractor is complicated, even more so by the fact three separate agencies assess the question differently depending on the situation. Our state workers compensation board, the NJ Department of Labor and the Internal Revenue Service each have a differing opinion about this matter. The IRS requirements can be found online at www.irs.gov. The Department of Labor and the Compensation Rating and Inspection Bureau also post information on their respective websites explaining general rules to follow. Go to www.state.nj.us/labor/ and www.njcrib.org, respectively.
In spite of all these separate systems, there are general rules of thumb one can utilize to determine employee versus independent contractor status. The key points to consider are:
The direct evidence of the right to control is probably the single most important of these points. Does the worker perform services for other firms at the same time as those performed for your company? Does the worker make their services available to the general public on a regular and consistent basis? Does the independent contractor realize a gain or loss for the services they render beyond the profit or loss realized by an employee? Do you pay business expenses? Do you provide hourly, daily, weekly or monthly periodic payments? Do you provide the worker with tools, materials or other equipment to perform their operations? Do you set the number of hours the person will work?
These are just a sampling of questions that helps to connect the line or to break the line that establishes the employee versus independent contractor relationship. With new legislation in place that makes it a criminal offense to knowingly misclassify a worker as an independent contractor, it would be wise to re-visit your individual circumstances with your legal counsel, insurance professional and tax professional. Proper advice will lead to intelligent business decisions and avoid serious personal and financial implications.
Anthony Bevilacqua, CPCU is President of Anthony & Company, an independent insurance agency with special insurance and risk management services tailored to the needs of the commercial and residential development community. You can reach Mr. Bevilacqua at (908) 806-8844 or email him at firstname.lastname@example.org.