EMPLOYEE OR INDEPENDENT CONTRACTOR?

ArtLinks can help you find either employees or independent contractors. Be aware of the differences and when each may or may not be appropriate (and legal). It can be confusing but if an audit occurs, the fines are substantial for incorrectly classifying an employee as an independent contractor.

The following information, taken directly from an Employment Development Department [EDD] publication, is reprinted for your use:

If a worker is an employee under the common law of employment, the business by which the worker is employed must report the worker's earnings to the EDD and must pay employment taxes on those wages. ArtLinks complies with this practice for all its temporary employees. If the worker is a legitimate independent contractor, reporting to EDD is not required. Fines are extensive if you incorrectly classify an employee. The following questions will help you to make the correct determination for your business.

If the answer to any of the following questions is Yes, it is a strong indication that the worker should be an employee and you have a high probability of risk if you pay the worker as an independent contractor.

1. Do you instruct or supervise the person while he or she is working?

Independent contractors are free to do jobs in their own way, using specific methods they choose. A person or firm engages an independent contractor for the jobí' end result. When a worker is required to follow company procedure manuals and/or is given specific instructions on how to perform the work, the worker is normally an employee.

2. Can the worker quit or be discharged at any time?

If you have the right to fire the worker without notice, it indicates that you have the right to control the worker.

Independent contractors are engaged to do specific jobs and cannot be fired before the job is complete unless they violate the terms of the contract. They are not free to quit and walk away until the job is complete. For example, if a shoe storeowner hires an attorney to review his or her lease, the attorney would get paid only after satisfactory completion of the job.

3. Is the work being performed part of your regular business?

Work which is a necessary part of the regular trade or business is normally done by employees. For example, a sales clerk is selling shoes in a shoe store. A shoe storeowner could not operate without sales clerks to sell shoes. On the other hand, a plumber engaged to fix the pipes in the bathroom of the store is performing a service on a onetime or occasional basis that is not an essential part of the purpose of the business enterprise. A certified public accountant engaged to prepare tax returns and financial statements for the business would also be an example of an independent contractor.

Additional Factors to be considered. A Yes answer to any of these questions is an indication the worker may be an employee, but no one factor by itself is deciding. The greater the number of Yes answers to questions 7 through 13 the greater the likelihood the worker is performing services as an employee.

7. Do you have employees who do the same type of work?

8. Do you furnish the tools, equipment, or supplies used to perform the work?

9. Is the work considered unskilled or semi-skilled labor?

10. Do you provide training for the worker?

11. Is the worker paid a fixed salary, an hourly wage, or on a piece rate basis?

12. Did the worker previously perform the same or similar services for you as an employee?

13. Does the worker believe that he or she is an employee?