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When Independent Contractor Classification is Done Correctly

We are increasingly hearing about misclassification of independent contractors in today’s rapidly changing talent landscape and our evolving economy. In our work with clients and prospects we often consult and educate on many of the pitfalls that companies can encounter when dealing with misclassified independent contractors, from back taxes and penalties to unpaid overtime and benefits. And while most government agencies have a bias towards all workers being classified as employees, it is important to note that in today’s new and global market, there are independent contractors being utilized correctly by companies everywhere. The key is ensuring that both the work and the worker are truly independent.

A New York Federal Court recently determined that the defendant, Universal Language Corp., was correctly engaging with two of its translators as independent contractors, even though the plaintiffs in the case believed they should have been classified as W2 employees of the company. The plaintiff’s argued that they lacked their own stationary – which would be reflective of an independent business – were provided some training, had to adhere to a certain dress code, and the company’s own website referred to them as “employees”. Despite these potentially valid points, there was still reasonable evidence indicating that the company correctly treated them as independent contractors. The two plaintiffs were to provide their own computers and headphones needed for the job, they were able to refuse work, and that they could and did provide their translation services to other clients while performing services for the defendant. Under the economic realities of the relationship, Magistrate Judge Orenstein determined that the two plaintiffs were in fact independent contractors.

It is obviously extremely beneficial for independent contractors to be able to run their own small business as they see fit, it is also beneficial for an employer to be able to utilize the services of independent contractors on a project basis, especially when a solution to a problem is needed that cannot be supplied in-house by an employee. As long as the independent contractor has done all that is necessary to be classified as an independent business, and the employer is not treating the contractor in such a way that would establish an employee relationship, both the employer and worker can benefit from the independent contractor status.

On the worker side, it is important that the independent contractor sees themselves as an independent business. Independent contractors are a very valuable asset to all types of businesses in our industry. A large majority of the independent contractors we work with are considered subject matter experts who provide a unique skillset to a variety of different clients. These independent contractors are in a position where they choose to work when they want to work, as well as for who they want to work for, accepting and declining work as they choose. These true independent contractors view themselves as independent businesses. They set themselves up as an LLC or have gone as far as incorporating their business, and offering their services to multiple clients for simultaneous project.  As independent businesses, they are not interested in taking on work that would classify them as W2 employees.

On the work side (the side that the employer is responsible for!) an understanding of how the employer plans on utilizing the independent contractor is one of the most important aspects to the classification puzzle. In the case mentioned above, mistakes were made with the level of control over the work that was present: the company providing training, direction given on required dress code, and listed the workers as employees on the company’s website. These items alone would not necessarily equate to an automatic W2 employee status, but they are all considerations that should be identified and addressed when making a worker classification determination. From Synergy’s perspective, going through an in-depth vetting process and being able to weigh all of the factors involved with both the work and the worker, and having a clear and agreed upon set of deliverables established in a statement of work, provides the most risk-averse solution for the employer and independent contractor relationship.

Independent contractor misclassification is a manageable risk that companies are faced with, regardless of whether the company has done everything in its power to ensure that they are working with true independent contractors. The Universal Language Corp. case illustrates that even with the risk involved, and having to go to court to defend the independent classification of its workers, as long as proper diligence is performed in the identification and assessment of the relationship, and the scope of work is put into ensuring both the work and the worker are independent, a company and worker can still enjoy an independent contractor relationship. TalentWave understands these distinguishing classifications and opportunities and is committed to ensuring that we help our clients forward with engaging their flexible workers efficiently, cost-effectively, and compliantly.

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