The same advice can be given when retaining independent contractors. Contractors are supposed to be in business for themselves. They are expected to be competent in performing the types of activities they are being retained to perform. In several of the Independent Contractor vs. Employeetests applied to federal and state laws, the amount and type of training is a factor that can tilt the scales toward a finding of misclassification.
But sometimes, some training is needed. The key questions to ask yourself are, What type? And How much?
You know deep down you’re not really going to run a triathlon or learn Mandarin in 2018, so how about a New Year’s Resolution that’s more realistic? Here are 5 things businesses can do to limit their risks of an independent contractor misclassification finding:
Review and edit contracts. Independent Contractor Agreements should be customized for the specific retention, highlighting actual facts that would be helpful in opposing a challenge to independent contractor status.
Review and modify facts. Almost every independent contractor relationship can be strengthened by finding ways you can give up control or memorialize ways that you do not ever intent to exercise control. Does it really matter what times of the day your contractor works? If you set hours and don’t need to, change that fact. Then memorialize it in the contract.
Use a Vendor Qualification Questionnaire. Qualify your contractors before retaining them. Make them represent to you that they are really in business for themselves, have other clients, are not economically dependent on getting work from you, etc. These representations can be useful if the contractor — or the government — ever challenges the contractor’s classification by claiming the relationship is really employment.
Assign a gatekeeper. You may have contractors that you don’t even know about because managers in parts of the business have retained outside help rather than ask permission to hire new employees. Create a process that requires managers to obtain permission from a particular person before retaining any outside labor.
Be proactive. Examine the facts and circumstances of your independent contractor relationships now. Know where you stand on the risk scale. Then assess how you can make changes to better protect your business against a claim of independent contractor misclassification. There are almost always steps that can be taken proactively to limit your risks. Be ready.
If you haven’t seen this Will Ferrell short video from 1997, take a look. Pretty funny.
Everyone wants their money. Method of payment is one of many factors used to evaluate whether an independent contractor is properly classified or instead is an employee.
Payment by the hour is permitted, but this method of payment more closely resembles employment. Payment by the project, regardless of time spent working, is most appropriate for an independent contractor relationship.
Have you ever had the dream where you show up at work or school in your pajamas or underwear? You’re exposed and embarrassed in the dream, and you can’t figure out why you forgot to put on regular clothes, right? (Please don’t tell me I’m the only one who’s had this dream. Please?)
You may be living this dream inadvertently in your vendor or subcontractor agreements. (And this is not what people mean when they say, “I’m living the dream!”)
The Monty Hall puzzle is a brain teaser based on the game show, Let’s Make a Deal. The contestant is presented with three doors and must choose one. Choose the correct door and win a car. Choose either of the wrong doors and win a goat. (Note to rural readers: The puzzle is a first-world conundrum and assumes you’d prefer the car.)
Once the contestant chooses, the host opens one of the doors with a goat and asks the contestant whether he wants to stay with his original choice or choose the other unopened door. As explained here, the contestant should always switch doors, since switching provides a 2/3 chance to win. The math here is not intuitive, but read about it and you’ll understand.
The gimmick relies on the fact that the host knows what’s behind each door and will only reveal a door that hides a goat. The host never reveals a car.
Sinkholes are terrifying. One minute you’re slowly and cautiously riding along a city street. Then the road buckles and disappears. I feel bad for this guy in the video!
A similar danger may lurk for businesses who perform background checks on independent contractors. You proceed cautiously, following the various legal requirements, then – BAM! – someone claims that by following those requirements, you’re treating the contractor like an employee. Whaaaaat?
Background check laws are full of technicalities and traps for the unwary. For pre-employment background checks, the federal Fair Credit Reporting Act (FCRA) requires:
a stand-alone disclosure form, disclosing that a background check may be run,
pre- and post-adverse action notices (if adverse action may be taken).