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Wednesday, June 22, 2011

Employee vs Independent Contractor Issues

Nonprofit employers have an obligation as a citizen, that is to obey the law and to be knowledgeable about the laws to which they are subject.

One way to reduce operating expenses is to use contract labor instead of hiring employees. In doing so, nonprofit employers can save payroll taxes, employee insurance costs and other expensive benefits. On the other hand, many potential workers would rather not have Social Security taxes withheld from their paid checks, and they are well aware that independent contractors are not subject to withholding.

Under common law, an individual who performs services for an employer, and that would include a nonprofit organization employer, is an employee and not an independent contractor, if the organization has the right to control and direct the work, not only with regard to the result to be accomplished, but also as to the details and means by which the result is accomplished.

Employee or Independent Contractor?

Behavioral Control as Evidence
1. Instructions - If the religious or other faith-based organization has the legal right to mandate when, where, or how (with what tools, personnel, and methods) the work is done, that would indicate an employer-employee relationship. The organization does not have to exercise the right as long as it has the right.

2. Training - By the organization providing the training, it would appear to control how the work should be performed, thereby indicating an employer-employee relationship.

3. Specifying the Worker - The organization, by selecting only workers who use approved methods, would be exercising control indicating an employer-employee relationship.

4. Available to the Public - If the worker holds him/herself out to the public as a separate economic entity, the worker would appear to be an independent contractor.

5. Employing Assistants - If the worker hires, supervises, and pays assistants, this would be evidence that the worker may be an independent contractor.

6. Work Sequence - If the organization specifies the order in which the work is to be done, it would appear that it is telling the worker how to do the work, thus indicating an employer-employee relationship.

7. Reporting - A worker that is required by the organization to report to it indicates that the organization has control over how the worker does the work, and is an indication of an employer-employee relationship.

8. Hours - An organization that specifies precisely when the work is to be done appears to be an employer.

9. Full-Time Effort - If the workers were full time, it would appear that they were economically dependent upon the organization, which would indicate an employee-employer relationship.

10. Location - If the organization tells the worker where to perform the work, that would be evidence of an employer-employee relationship.

Degree of Financial Control as Evidence
11. Reimbursement - Employees are less likely to have unreimbursed expenses than are independent contractors. Therefore, the organization that controls reimbursable expenses of the worker is acting like an employer.

12. Investment - If the worker has a substantial investment in the work, it would indicate that the worker is an independent contractor.

13. Outside Work - If the worker has the right or ability to devote equal priority to other jobs, for other entities, it would be evidence that the worker is an independent contractor.

14. Fixed Pay - If payment were "by the job" as opposed to by workers' hours, it would be evidence of an independent contractor arrangement.

15. Risk of Loss - A worker who bears the risk of financial loss or gain from the work performed is more likely to be an independent contractor.

16. Tools and Supplies - If the worker provides the tools, equipment, material, and supplies to get the job done, the worker is probably an independent contractor.

Relationship of the Parties as Evidence
17. Termination - If the arrangement is contractual, the worker is probably not an employee.

18. Can the Worker Quit? - If so, it is probably an employer-employee relationship.

19. Benefits - If the worker can receive employee benefits, worker is probably an employee.

20. Continuing Relationships - Longstanding relationships tend to indicate that workers are economically dependent upon the organization, and therefore they would be employees.

21. Integration of Work to Regular Business Activity - A worker who provides services that are a key element of regular ongoing operations is more likely to be an employee.

22. The Parties' Intent - If organization and worker demonstrate a mutual intent that the relationship is one of hirer-independent contractor, it supports that relationship.

Independent Contractor Vs. Employee
 Independent contractor vs. employee 

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