As a workers’ compensation attorney, I am acutely positioned to understand the difficulty surrounding the issue of employment status. I have represented businesses needing to demonstrate that their laborers were independent contractors. I have also represented individuals needing to prove their employee status in order to secure either workers’ compensation or unemployment benefits. Here are some helpful tips to avoid problems for
employers and laborers alike:
Many small businesses, such as yoga studios and production companies, determine that since having “independent contractors” is more economical and convenient than having “employees,” they can magically crank out the 1099s, declare everyone independent contractors and–voila–it is so. In reality, it doesn’t work that way. The desire to avoid insurance and accounting expenses and thereby avoid making appropriate federal and state paycheck withholdings will just get you into trouble if the employment arrangement you have with your laborers is not actually that of an independent contractor.
Independent contractors are individuals or businesses that are independently established because they have a business license, certifications, or have established a business entity; have a separate business location; keep track of their own expenses to determine whether they make a profit or incur a loss; do not depend upon you for their livelihood; work for other clients before, during, and after performing services for you; they innovate in their work; retain intellectual ownership thereof and reap the rewards of any enhanced profits; do their own advertising; and have their own equipment to do the job.
An independent contractor is not under your direct supervision and control because he or she determines the manner in which they will accomplish the job they are hired to do; are free to do work for other clients or customers; have a written contract describing exactly what they have been hired to do; are paid for completing a specific job after which they have no continuing relationship with you; are not instructed on how to do their job; cannot be fired except for cause or material breach of their duties without you incurring breach of contract liability; cannot quit without incurring breach of contract liability; does a job that is not integral to the purpose of the business enterprise; and they set their own hours and schedule.
You might be asking whether only some of these factors apply to your particular employment arrangement? An independent contractor needs to be independently established and free from your control. Most film production companies forget the “free from control,” aspect of their independent contractors. Also, be aware that simply calling somebody an independent contractor in correspondence or a contract does not make it so. Both the spirit and the letter of the law must be fulfilled. Do not focus on a particular factor within the two facets required to establish an independent contractor relationship at the exclusion of the others.
For instance, most film productions occur over a short period of time. However, within that short period of time, the actors and the crew members are usually highly controlled, cannot work for other production companies, and are integral to the productions success. They are also told, with great specificity, where, when, and what todo and how to do it. Given this, they are usually employees.
To make things more complicated, you may be able to hire specific persons or businesses to do jobs such as catering, lighting, editing etc. wherein they are independent contractors, but their laborers are their employees. As the general contractor, you will want to verify that your independent contractors are complying with labor laws related to their employees.
Finally, do not act in ways that brings those employees within your sphere of control. Similarly, just because workers provide you proof that they have health insurance, workers’ compensation coverage or waiver, and a business license does not seal the deal and make them an independent contractor. Conversely, if a workers don’t have health insurance, workers’ compensation coverage, nor an established business entity, etc., this does not break the deal.
While it helps you cover your bases to get such information, it is not the guano-catching paperwork that creates an independent contractor; it is the overall incorporeal embodiment of the relationship. While you don’t need to be militant with your independent contractors, you do need to be vigilant to holistically establish the particular employment relationship you desire to create.
Still confused? Talk to a lawyer. I know one. And while talking to a lawyer may cost money, it can be cheaper than a lawsuit or a government audit with its concomitant penalty assessment.
Loren M. Lambert of Arrow Legal Solutions Group, PC
© June 16, 2015