Recently, many companies have started to contract out certain work, rather than hiring new employees to do it. There are many reasons for this, most of which relate in one way or another to reducing costs and/or perceived liability. As this trend has gained momentum, some employers have moved significant work from employees to contractors, and done so in a short period of time.

However, without careful consideration beforehand, a quick shift to reliance on contractors invites problems. Employers have certain obligations to employees, such as abiding by wage and hour laws, paying the employer portion of FICA tax, paying workers and unemployment compensation premiums, and providing family and medical leave. Merely calling someone a contractor may not be sufficient to satisfy affected employees, (let alone state and federal agencies) that there is no employer/employee relationship, and thus, that the obligations of an employer do not apply.

Employers need to examine whether their “contractors” are more likely, in the eyes of the law, employees who work for them, rather than simply what they have been labeled. The key factor in distinguishing employees from contractors is control. If you on a regular basis direct how the work gets done, who does the work, and when it is to be performed, chances are the person doing the work is an employee.

There are numerous other factors. For instance, if you provide the training, tools, and equipment, that would tend to indicate that the person is more likely an employee than a contractor. If you require the person to comply with a set of policies and procedures similar to those applicable to your employees, chances are he or she is going to be viewed as an employee. No one consideration is determinative but, taken as a whole, if the factors show that “contractor” is merely a label and you are treating the person like an employee, then the legal obligations owed to employees are probably going to apply.

One other danger is particularly acute here: ignoring the problem and hoping it will go away. Employers need be mindful that ignoring the issue only raises the stakes, because certain obligations to employees continue to pile up each day the misclassified person works. And, being in a period of strict enforcement by administrative agencies like the Department of Labor and others only exacerbates the danger. For these reasons, employers who have people that may be misclassified as contractors need to re-evaluate how they have characterized their work relationships and, if need be, secure advice promptly to help them make the proper determination.

“Jack” Merinar is the leader of the firm’s NLRA team. He got his introduction to labor law in the early 1990’s seeking injunctions of picket line misconduct and handling arbitrations. By the mid 1990’s he was advising employers through union campaigns and elections. His experience with campaigns led Jack to develop a focus on advising employers how to avoid campaigns where possible.
» See more articles by John R. Merinar, Jr.
» Read the full biography of John R. Merinar, Jr. at Steptoe & Johnson

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