It is important for employees to be properly classified. Whether or not an employee is an independent contractor is generally measured by the degree of control the employer has over the independent contract versus the degree of independence the independent contractor has. It is helpful to know how this is measured to protect the rights of workers and because there may be penalties under employment laws for employee misclassification.
Factors use to determine if a worker is an independent contractor
Employers typically do not control the means of how an independent contractor performs their work. Whether a worker is an employee or an independent contractor is based on an evaluation of factors including:
- The extent to which the services being rendered are an integral part of the business;
- The permanency of the business relationship;
- The nature and degree of control of each party;
- The degree of independent business organization and operation;
- The amount of the worker’s own investment that has gone into equipment and materials;
- The worker’s opportunities for profit and loss;
- The amount of initiative, creativity and foresight required for the worker to succeed against others in the open marketplace; and
- The extent to which the worker controls the method of accomplishing the work and when and where the work is performed.
How the worker is classified impacts how they are paid or compensated, how taxes are paid and certain rights of the employee. Employee misclassification can result in the worker not being properly compensated or receiving the wages or protections they have earned. For that reason, workers and employers alike should all understand how independent contractors are properly classified.