“If you are not happy with who you are,
you will never be happy with what you get.”
ACTUAL “CASE HISTORY”: Ira was two years out of law school, but still unable to land his first full-time law job with a law firm. Over that time he had registered with a temporary help agency that specialized in part-time lawyers, and through that temp agency Ira had taken on some short-term assignments to help out law firms for specific cases. When the case was over, his job was over, too.
Some six months before coming to our firm for a consultation, through his temp agency Ira had been hired by a large law firm to work on a large case that was expected to last for two to three years. His job was to review documents and summarize them for the trial team. He worked at the law firm’s offices, was given a small office to work in, and expected to be there Monday to Friday, 9:00 am to 6:00 pm each day. Some weekends Ira was required to work, as well, especially if a deposition had been scheduled and the trial attorneys needed documents reviewed for it.
Unlike the law firm’s other attorneys, Ira received no benefits, no paid vacations, no paid holidays, no sick days and no 401k. It wasn’t a “real law job,” but it was enough to keep Ira afloat.
Ira didn’t see any difference between what he did and what the law firm’s associate attorneys did, and wondered why he was considered an “independent contractor,” and they were considered “employees,” and why he was not entitled to all of the benefits they were.
Ira had good reason to wonder, and much to gain by asking questions.
LESSON TO LEARN: Our lives are full of different relationships, and often they can be unclear and confusing. Your doctor performs services for you, and you pay your doctor for those services. Does that make your doctor your employee? Why or why not? Can an employer use your services, and pay you for them, and still say you are not “employed?” Why or why not? If a partner in a company performs services for that company, and the company goes out of business, is the partner entitled to Unemployment Benefits? Why or why not? In each of these instances, the correct answer to the question is derived from the correct view of the underlying relation.
Despite frequent confusion and lack of clarity, we put a variety of different labels on people who (i) perform services and (ii) get paid. These labels include “employee,” “partner,” “independent contractor,” “vendor” and the like. Though each label has legal and financial implications, we often interchange them, sometimes to our benefit and sometimes to our detriment. As with everything else in life and at work, knowing what you are doing is most important.
The two “working relationship labels” that are most often confusing to people – and that get more people in “trouble” – are “employee” and “independent contractor.” Though there is no exact “bright line” test that differentiates the two, our analytical focus is always on one word: “control.”
a. What is an employee? An employee is under the “control” of his or her employer. The employer almost always (i) tells the employee what days and hours to work, (ii) tells the employee where he or she should work, (iii) tells the employee what work to do, (iv) tells the employee who will supervise his or her work, (v) tells the employee how much money he or she will be paid, (vi) tells the employee when he or she will get paid, and (vii) tells the employee how to do his or her work. That list of “control factors” is not exhaustive: in general, the employer “controls” all aspects of the employee’s work.
Also, an employee is generally provided by the employer the tools, equipment and supplies necessary to accomplish a task, whereas an independent contractor generally provides his or her own. In addition, the longer a working relation lasts, the more it is viewed as an employment relation.
b. What is an independent contractor? An independent contractor is just what the title says: one who is “independent” of the employer’s total control, and “one who makes a contract” of sorts regarding the provision and payment for his or her services. Do you or does your plumber decide when he or she will perform services for you? Of course, the plumber does. Do you or your plumber decide how much the plumber gets paid? As a general rule, the plumber sets his or her own hourly rate. Do you provide your plumber with paid sick days, vacation or holidays? No. Do you supervise the plumber’s work? No. Overall, do you control your plumber? Hardly. For these several reasons, while your plumber provides services and you pay for them, there is no employment relation, but an independent contractor relation, instead.
Though there are many other factors we look for to determine whether someone is an independent contractor or an employee, “control” is the overriding issue.
The distinction between employee and independent contractor can be a blurry one, and it should not be surprising that, after reviewing all of the factors, one court might find that employment might exist, while another court might find that an independent contractor relation might exist. Nevertheless, a “best answer” almost always arises from a common sense review of the facts and circumstances of the parties’ interactions.
c. In a very few instances, the law dictates which working relation exists. For certain occupations, state and federal laws sometimes dictate which of the two working relations you can be. We call these “statutory employees” and “statutory non-employees.” For example, even if a person is clearly an independent contractor, if he or she does any one or more of the following, the U.S. Internal Revenue Service (“IRS”) requires employers to treat them as employees: (a) a driver who distributes beverages, meat, vegetables, fruit or bakery products, or who picks up and delivers dry cleaning, if his or her pay is fully or partly paid in commissions; (b) a full-time insurance sales agent primarily for one insurance company; and (c) an individual who works at home using materials supplied by the company and must be returned to you when not needed, if the company furnishes specific requirements for the use of the materials. These people are designated by the law as “statutory non-employees”: licensed real estate agents, direct salespeople, and certain home companions, provided each has a written agreement stating so.
d. What difference does it make? The law requires that employers obey many laws regarding how they treat employees, which don’t apply to independent contractors. As examples, (a) employers must contribute about 7% over and above an employee’s income to the employee’s Social Security retirement fund, but are not required to do so for independent contractors; (b) employees must be protected by workers’ compensation insurance, in case they get hurt on the job; independent contractors have no such protection; (c) if an employee is not paid his or her earned wages, state labor departments of most states will assist them in their collection efforts; independent contractors are “on their own.” Employers are also required to make contributions for employees’ federal Medicare and state-required minimum disability coverage.
While many employers provide their employees with paid sick days, paid vacation, contributions to health care, and paid holidays, generally independent contractors do not get any such benefits.
On the other hand, independent contractors have certain advantages that employees do not. As examples, (a) they can charge whatever fees they can negotiate, (b) they can determine their own work schedules, (c) taxes are not withheld from their paychecks; they arrange for their own tax payments, (d) they can deduct from their income taxes their work-related expenses, and (e) they can have multiple “clients” at the same time. As I frequently say, “Being your own boss is either the best thing in the world, or the worst thing in the world, depending on who you are.”
e. Many laws protect employees, but not independent contractors. One important difference is that the federal and state discrimination laws protect employees, but they do not protect independent contractors. So, for example, it is entirely legal to decide that you want a doctor of a certain race, you don’t want a lawyer of a certain gender, or you want a plumber of a certain religion. “Discrimination” in the choice of which independent contractor to hire is not prohibited by the law, but is entirely legal. As another example, the Family Medical Leave Act (“FMLA”) provides employees with a right to time off to take care of a medical problem, but does not provide these same protections to independent contractors.
f. Many employers try to call people independent contractors in order to save money. The most common scenario seen by employment lawyers and Courts is for employers to try to characterize true employees as independent contractors in order to save money on such things as (a) employee benefits, such as vacation, sick days and health insurance; and (b) legally required payments, such as unemployment, Social Security contributions, and workers’ compensation coverage.
g. The most important lesson is this: Once you know the differences between being an employee and being an independent contractor, you can (i) negotiate to minimize those differences to you, and/or (ii) file a complaint to get proper treatment. Though few understand this important lesson, it is the essential lesson to learn: (a) you need to know the differences between being an employee, on the one hand, and being an independent contractor, on the other hand, and (b) once you understand the differences, most – but not all – of those differences are negotiable.
WHAT YOU CAN DO: Understand the difference between the two working relations, and understand, too, that you can negotiate and navigate the best of both relations. Here are the five basics you need to keep in mind: Read the rest of this blog post »