It is often economically advantageous for businesses to utilize independent contractors rather than hiring additional employees. However, in doing so, businesses must be extremely careful not to run afoul of state and federal laws governing the classification of workers. Understanding some basic legal concepts underlying the classification of employees and independent contractors will help businesses avoid larger problems.

According to Connecticut’s Joint Enforcement Commission on Employee Misclassification, misclassification occurs when an employer incorrectly defines a worker as an independent contractor instead of an employee. Although the factors used to determine a worker’s status are numerous and can vary among state and federal agencies, the Connecticut Department of Labor uses the “ABC Test.” Under the ABC Test, a worker must meet all three of the following criteria to be considered an independent contractor:

• The worker must be free from direction and control in the performance of the services; 
• The services must be performed outside the employer’s usual course of business or outside the employer’s place of business; and 
• The individual must be customarily engaged in
  an independently established trade, occupation, profession or business of the same nature performed. 

If a business has a good faith belief that its workers are independent contractors, and not employees, the following steps can be taken to minimize legal exposure:

Put It In Writing. Each independent contractor should sign a written agreement detailing, among other things, that the worker is an independent contractor and not an employee. Although a written agreement does not establish a worker’s status on its own, it is an important piece of the puzzle.

Do Not Set Work Hours Or Micromanage. A true independent contractor may set his or her own work hours and is only responsible for delivering the agreed upon work product to the business. The method of doing so is up to the independent contractor.

Do Not Provide Company Equipment. The contractor should use his or her own equipment and tools, not those of the company, to perform the services. In addition, the contractor should not have his or her own workspace at the company or a company e-mail address.

Require Contractors To Establish A Business Entity. An independent contractor must be treated like a separate legal entity. Having a legal entity for the independent contractor’s business, such as a limited liability company (LLC) is beneficial. The independent contractor should also have other indicia for that separate business entity – such as business cards,
a business license, business insurance, letterhead stationary and invoices with the business name and/ or logo. The independent contractor should also have other clients.

Do Not Provide Employee Benefits. Only actual employees should be offered benefits.

This is merely a partial list of the steps that can be taken to help ensure that workers are treated as independent contractors under the law. Due to the State’s emphasis on worker misclassification, businesses are encouraged to assess their own compliance with these laws and take proactive steps to avoid potential legal issues. For more information, please contact Daniel B. Fitzgerald (dfitzgerald@brodywilk.com).