When a business makes the decision to increase its workforce, it must also make a decision on how the added workers are to be hired and classified. Generally, a business can choose to hire people as employees or as independent contractors. How the person is classified makes a difference in how the person is paid and treated by the business.

Classifying a person as an independent contractor or as an employee is not simply a matter of the employer’s preference under Michigan law. There are rules and tests that are used to determine whether a person is properly classified. If an employer improperly classifies an employee as an independent contractor in order to avoid paying him or her more or providing certain benefits, it could end up costing the employer more in back taxes and penalties.

What makes a person an independent contractor instead of an employee is usually determined by analyzing the particular employment relationship. For example, if the worker has autonomy and works independently, producing work for set projects, using his or her own tools, and subcontracting some of the work to others, the worker is likely to be considered an independent contractor. In some cases, however, this may not be enough to prove that a person is an independent contractor, and the court may have to look more closely at the circumstances of the employment.

Some of the factors that indicate a person is an employee instead of an independent contractor include: close supervision or monitoring of the worker, the worker works exclusively for the employer during set hours, the worker has no discretion as to work hours and schedules, and generally, the worker has no control over how his or her work is performed. This is not an exhaustive list of the necessary factors, and a court can look more closely at the individual person’s situation.

The classification of a person as an employee also has serious implications for the business in terms of liability. For example, if a person is classified as an employee, the business may become liable for any injuries caused to others through the negligent acts committed by the employee in the course of his or her employment. Businesses are not liable in a similar fashion for the acts of independent contractors. In addition, the business has to have different agreements in order to own or control work product created by either an employee or an independent contractor.

There are additional employment issues to look out for even after determining the appropriate classification for a worker. For example, if a person is classified as an employee, the employer then has to determine whether the employee qualifies for overtime pay under state and federal law, as well as other benefits, and ensure that these are properly afforded to the employee.

Contact Us for Legal Guidance

It is important to discuss the possible implications of hiring employees or independent contractors with an experienced attorney before hiring anyone. Taking some time to go over the laws and regulations beforehand may save time and avoid legal challenges later on. For more information on employment issues that may affect your business, contact an experienced employment contract attorneys today at Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan to schedule a consultation.

(image courtesy of Stefan Stefancik)