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Business and Labor Unite to Seek Reform on Independent Contractor Issue

Posted by Chris Peterson | Sep 18, 2014 | 0 Comments

Business and Labor Unite to Seek Reform on Independent Contractor Issue

Employment lawBusiness groups and labor advocacy groups in the Austin area have united in a common goal: Root out construction companies who undercut the competition by cheating. According to the protestors, some construction companies intentionally mislabel workers as independent contractors, rather than employees, to minimize reporting requirements and avoid payroll taxes, unemployment contributions and insurance expenses.

Perhaps the most egregious part of the scheme is that the contractors allegedly at fault were hired with state funds to work on public projects. The cost to taxpayers in Texas is estimated to be more than $1.2 billion per year in lost tax revenues, according to an investigation conducted by McClatchy, a Washington, D.C. based organization.

What difference does it make in the long run?

By classifying some employees as independent contractors, employers minimize payroll taxes and unemployment contributions. They also save some of the cost of doing business by minimizing the amount of overhead needed to hire staff or pay an outside service to meet reporting and remittance requirements.

There's nothing wrong with hiring independent contractors to do a job – as long as they are actually independent contractors hired to do a specific job, such as freelance writers or skilled service providers.

Intentionally misclassifying workers who should be treated as employees, however, allows employers to evade taxes and circumvents many of the safeguards put in place by lawmakers to protect the nation's labor force.

What is the difference between an employee and an independent contractor?

Under the law, employees and independent contractors are distinctly different. Employees are entitled to a host of legal protections not provided to independent contractors. According to Internal Revenue Service (IRS) and other agencies' rules, a worker is most likely an employee and not an independent contractor if any of these statements are true:

  • The employer provides the tools necessary to complete the job
  • The job is ongoing, as contrasted with a job which is likely to be finished in a relatively short period of time
  • The job is paid at an hourly rate
  • The job requires a relatively low or moderate level of skill and experience
  • The employer or his representative oversees completion of the job
  • The person hired does not have flexibility in determining a work schedule or method of completion
  • The person hired does not work for someone else, such as a temp agency

Each statement indicates the level of control the employer has over the way the job is completed by the worker. The more statements are true, the more likely the worker should be classified as an employee rather than an independent contractor.

What if a worker agrees to be an independent contractor?

An agreement between the employer and a worker as to classification of employment is not binding on a third party, such as the IRS or the Texas Workforce Commission. Penalties may apply regardless whether you intentionally skirted regulations or not, so if you are an employer, be sure your workers are categorized correctly.

If you're not sure whether your workers should be classified as employees or independent contractors, contact one of our experienced  Bryan-College Station, Texas business law attorneys at Peterson Law Group. Our attorneys analyze your business and employment questions and make legal recommendations to help you meet your goals. Call the Peterson Law Group to make an appointment at 979-703-7014 or fill out our online contact form.

About the Author

Chris Peterson

Chris Peterson is the owner of Peterson Law Group. He practices primarily in the areas of wills, trusts and estate planning; probate and trust administration; elder law; and business law. Chris is also the owner of Brazos 1031 Exchange Company.


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