In the age of the internet, cell phones loaded with apps and video conferences, we’re seeing a surge of independent contractors. Independent contractors can work in numerous fields, including, but certainly not limited to, virtual assistants, graphic design, legal research and writing and many, many more. Stretching the traditional notion of your workforce, and creating something better using new advances in technology is an example of innovation at its finest. Just ask Uber. Companies everywhere are taking advantage of this diverse workforce, and finding the best person to fill the job, even if he or she is half way across the globe.
But where do the lines between independent contractor end and employee start? Independent contractors, by definition, are self-employed. Employers are often tempted to reclassify their employees as independent contractors to avoid taxes, benefits, and other payroll expenditures. Loopholes like this cost the IRS an estimated billion dollars in tax revenue each year.
To find a solution, the IRS uses the “20-factor test.” This test assesses the degree of control the company exercises over the way the work is performed by the independent contractor. If the employer exercises too much control over the independent contractor, then he’s considered an employee. Most states have similar tests, usually under labor laws, to determine a worker’s status.
Connecticut uses the “ABC Test” to conclude if the worker is an independent contractor. The individual must satisfy all three tests: (A) he must be free from control and direction in connection with the performance of the service, both under his contract of hire and in fact, and (B) his service is performed either outside the usual course of business or outside of all the employer’s places of business, and (C) the individual must be customarily engaged in an independently established trade, occupation, profession or business of the same nature as the service performed.
The title of or language in a contract does not make someone performing services for your company an independent contractor. A person in Connecticut who satisfies each test (A, B and C) is entitled to all the rights of an employee, including overtime. Determination of an independent contractor status can be difficult. Misclassifying an employee can cost an employer a ton of money in unpaid wages, overtime and substantial penalties.
The Interlandi Law Office will guide you through the ABC Test and help you develop a plan to grow your business with the use of independent contractors. Call us to schedule a consultation.