The way workers are classified impacts the protections they receive. Classification, and misclassification, can also have tax implications. Workers should know how independent contractors are classified and how an independent contractor relationship is formed so they can ensure they are properly classified and protected.
How independent contractors are classified
In general, the independent contractor classification is measured by the degree of control the employer has over the worker versus the independence the worker has in the method of how the work gets done. Factors used to determine the worker’s classification can include:
- The extent to which the services rendered by the worker form an integral part of a business;
- The permanency of the business relationship between the worker and the employer;
- The amount the worker investment in equipment and materials;
- The nature and degree of control of the worker and the employer;
- The worker’s opportunity for profit and loss;
- The degree of independent business organization or operation of the worker; and
- The amount of initiative, creativity and foresight required for the worker to succeed against others on the competitive market.
Employment law serves a variety of different purposes and can keep employees and employers protected when followed. It is important to understand how an independent contractor relationship is established and a simple contract, for instance, is not considered determinative. Independent contractor classification has a significant impact on the relationship between a worker and an employer they contract with which is why it is helpful to be familiar with independent contractor classification to avoid misclassification.