AM I EMPLOYING A CONTRACTOR OR AN EMPLOYEE?
Several states including Michigan are looking for new revenue streams. And, of course, politicians are always looking for new villains they can demonize with impunity.
So why not go after employers who use contractors for certain jobs.
Contractor versus employee status is a grey area with plenty of definitions and interpretations. In some industries, it is common practice to employ contractors. Contractors give employers the flexibility to get certain jobs done without hiring a full-time employee.
Michigan politicians are already on TV and in the newspapers calling it “wage theft” or “payroll fraud” a new area they are going to clamp down on “for the citizens of Michigan”. And in the process, demonizing the helpless businessman who may have been using contractors for years.
California has already passed a law restricting the definition of contractors to force employers to make them employees. The contractors are not happy about the change. The employers are not happy about the change. The general public does not care. So the only beneficiaries of the change are the bureaucrats who administrate the changes and the politicians who think this is going to generate new revenue. (Many experts think the new revenue will be minimal if not a net negative.)
Be aware of the difference between an employee and a contractor.
In the restaurant business, a contractor is a plumber, a repairman, someone who comes in and does one job and leaves. A consultant can be a contractor or an outside service. Someone who works for others and advertises his or her services is a contractor. Someone who brings his own tools to a job is usually a contractor.
In the restaurant business, the definition of an employee includes: doormen, short-term employees, employees on a probationary period, office persons, delivery people (unless it is an outside delivery service), someone who works for you on an irregular basis. If you control a person’s job description, they are probably an employee.
If you misclassify a person as a contractor and the state claims they are an employee and you lose, the tax cost can be very high including unemployment taxes, workers comp insurance, payroll taxes, penalties and interest as well as possible legal and accounting fees. In addition, the state can go back three years.
In very egregious cases, you could even get jail time. If you are not sure if a worker is a contractor or not, call our office for clarification.
|Control||Company dictates how, when, and where work is performed and provides the tools and materials to complete the task.||Independent contractor determines how the task is completed based on agreed-upon scope or statement of work.|
|Exclusivity||Employees generally work exclusively for the company.||Independent contractor may service several companies at once.|
|Training & Supervision||Employees are trained and supervised by the company & its personnel.||Independent contractor consult with company personnel on work product but are not instructed on how tasks are completed.|
|Compensation||Employees are paid a salary or hourly wage.||Independent contractor are paid a contract fee, often project-specific.|
|Benefits||Employees are eligible for employment benefits, unemployment, and workers’ compensation||Independent contractor are not eligible for benefits that the company affords its employees.|