Is It OK To Classify An Employee As An Independent Contractor?

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Question: Is it legal to hire someone for 30 days as an independent contractor and then switch them to employee status if they work out?

Answer: Yes…but it’s not a great idea. Here’s the problem. Labeling a worker as an independent contractor raises all kinds of issues with the IRS, the U.S. Department of Labor, your state labor department, your workers comp carrier…you really don’t want me to go on. The IRS likes their tax withholdings so they take a dim view of an employer who avoids withholding taxes because the worker is not a W-2 employee. Federal and state labor departments worry that calling someone an independent contractor may be a ruse to avoid extending benefits to the worker. Workers comp is a potential issue because your comp policy may or may not cover independent contractors. If an independent contractor gets hurt while working for you, and your policy doesn’t cover independent contractors, you may get stuck with a lawsuit for medical payments and lost income. These are problems which can arise even if independent contractor status is temporary. But you have an alternative. Many employers place new employees on probation for the first few weeks of employment—a try-out period during which it’s understood the company will be deciding whether the worker is a good fit. Depending on your benefits programs, you may be able to delay enrolling a new employee until the probation period has been satisfied. Try the probation alternative–calling a worker who performs the same work as your employees an independent contractor is a red flag.

DISCLAIMER
This response is intended for general informational purposes only and should not be construed as legal advice or a legal opinion, nor is this column a substitute for formal legal assistance. For help with particular legal needs, members are invited to consult with ACCA’s LegalTools Counsel, Brooke Duncan III of Adams and Reese LLP. Mr. Duncan can be reached at 504-585-0220 or by email at brooke.duncan@arlaw.com.

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Posted In: Legal