In some situations, it makes sense to structure the relationship with a worker as an Independent Contractor. However, the situations for which this arrangement are a strong legal fit are rare.
Benefits of Using an Independent Contractor
- Reduced overhead (mandatory employer-related costs (MERCs), office space, equipment, benefits, etc.)
- Reduced administrative burden (calculating payroll, tracking overtime, hours worked, etc.)
- Less management, training, and communication
- Simper and less costly termination of the relationship.
Risks of Using an Independent Contractor
- The company lacks control over how and when the work is completed, and rates charged
- Legal and financial risks associated with the role being determined to be an employment arrangement down the road (severance, fines, MERCs)
Ensuring a Valid Independent Contractor Arrangement
Several things should be done to create a legally compliant independent contractor relationship.
- Have signed a properly drafted independent contractor agreement.
- Ensure that the work relationship is structured as truly independent. In both the agreement and the structure of the work, the following factors need to be met:
- The contractor is responsible for some or all the tools or equipment used to do the job.
- The contractor is responsible for mandatory government remittances.
- The contractor is in business for themselves, makes a profit, and has a risk of losing money.
- The contractor controls how and where work is completed.
- The contractor can subcontract work and can work for others.
- The company cannot discipline the contractor or review their performance, as they would an employee.
- The relationship with the company cannot be ended by either party other than by terminating the contract in accordance with its terms.
- Contracts ought to have an end date; not run in perpetuity.