Independent contractors

Independent contractors are individuals or companies that provide SERVICES for consumers, businesses, or govern- ment. Most professionals are independent contractors, who are best defined by what they are not: employees. Independent contractors typically are paid by the task, while employees are paid by the hour. Independent contractors contract with the consumer or business to produce some result, while employees are told how to conduct their work. The distinction between independent contractors and employees has many legal, tax, and INSURANCE implications. As cited in Mallor et al., U.S. courts use five factors in determining whether workers are independent contractors or employees. First is the degree of control exercised by the alleged employer. Does the employer determine when, where, what, and how a worker does their job? Independent contractors generally determine when and how work is done. Second, what are the relative investments of the worker and alleged employer? If the worker provides equipment, transportation, and other ASSETS necessary to the task, they are more likely to be considered an independent contractor. In a factory where the company provides almost all of the materials and machinery needed to produce the products, workers are more likely to be considered employees. In the case described by Mallor et al., topless dancers for the Circle C organization provided their own costumes and locks for their lockers, but Circle C provided the nightclub. The dancers’ investments were relatively small compared to those of the business. Third, to what degree does the alleged employer determine the workers’ opportunities for PROFIT and loss? Independent contractors generally profit by their ability to gain CONTRACTs and complete their work. In the Circle C case, the dancers’ initiative, hustle, and costumes significantly contributed to their income, but the club’s ADVERTISING, location, aesthetics, and food and beverage service gave the club control over customer volume and therefore provided the dancers with opportunities for profit. Fourth, what skills and initiative are required in performing the job? Most independent contractors provide a distinct skill that the consumer or business needs and wishes to hire for a specific purpose. Employees are generally trained to do tasks required by their employer. Fifth, what is the permanency of the relationship between the worker and the alleged employer? Independent contractors generally have a short-term, task-specific relationship, while employees have a longer, hours-perweek commitment with the employer. Independent contractors are typically liable for their work, while the consumer or business hiring them is generally not liable for the contractor’s actions. There are exceptions to this distinction, such as when a firm hires an incompetent independent contractor or when the contractor is negligent in taking “special precautions needed to conduct certain highly dangerous or inherently dangerous activities.” Another important distinction between independent contractors and employees is eligibility for WORKERS’ COMPENSATION and other benefits. Workers’ compensation protects employees but not independent contractors against the risk of injury on the job. Many companies hire independent contractors in order to avoid the workers’ compensation costs and liabilities. Independent contractors are also not eligible for a company’s health-care program, RETIREMENT PLAN, vacation time, or other benefits. In the 1990s many companies reduced their number of employees, often rehiring laid-off workers, at a lower cost, as independent contractors. In the business world, these new independent contractors were called “corporate pilot fish.” Independent contractors are also treated differently under the federal tax code. Employees pay Federal Insurance Contributions Act (FICA) taxes based on wages, and their contributions are matched by their employers. Independent contractors are considered self-employers. If a contractor has employees, then he, she, or it could be a PROPRIETORSHIP, PARTNERSHIP, or CORPORATION. Many businesses prefer to classify workers as independent contractors in order to avoid the benefits and taxes paid on employees. The FAIR LABOR STANDARDS ACT (FLSA), passed in 1938 and amended many times since then, is a major labor-management law regulating wages and hours, child labor, equal pay and overtime pay, and employee-versusindependent contractor status.