Whether your business hires employees or uses independent contractors will have important tax and unemployment implications. Connecticut law states that “employment” is more than just the common law master and servant definition adopted by the IRS. Any service will be considered employment unless it passes what is known as the ABC test. A Connecticut business attorney can help you understand the difference between independent contractor and employee.
In Connecticut, an individual can only be considered an independent contractor if all of the following apply:
- The worker must be free from direction and control in the performance of the service. This must be true under both the terms of the contract for hire and how the relationship exists in reality. In other words, merely entering into a written agreement defining the worker as an independent contractor is not enough.
- The worker’s services must be performed either
- Outside the usual course of the employer’s business
- Outside all of the employer’s places of business
- The worker must be “customarily engaged” in an “independently established” trade, occupation, profession, or business. And, this line of work must be of the same nature as the service being provided.
A Connecticut business lawyer will examine a variety of factors to evaluate which category a worker falls under. The underlying question is whether the employer has the right to control the means and methods of work. There are some common indicators that the person hired is an employee; for example, if the employer:
- Pays the worker at a salaried or hourly rate
- Establishes the hours to be worked
- Maintains the right to discharge the worker
- Supplies the necessary materials or equipment for the job
- Monitors the person’s work
- Retains the right to take disciplinary or corrective measures if the job performance is unsatisfactory
The IRS has its own list of factors that it uses to answer this question. But it’s important to comply with state law requirements as well, and to routinely evaluate its independent contractor relationships. A Connecticut business lawyer can assist with this. A 2017 Connecticut Supreme Court case added clarity by setting forth several additional factors, including:
- The existence of state licensure or specialized skills
- Whether the worker holds himself or herself out as an independent business through business cards, printed invoices, or advertising
- The existence of a place of business separate from that of the employer
- The worker’s own investment in the independent business, e.g. vehicles and equipment
- Whether the worker handles his or her own liability insurance
- Whether services are performed under the individual’s own name as opposed to that of the employer
- Whether the worker employs or subcontracts others
- Whether the worker has a saleable business and an established clientele
- Whether the individual performs services for more than one entity
- Whether the performance of services affects the reputation of the worker rather than the employer
No single factor will make or break the determination. Rather, a court or agency examining the issue would evaluate the “totality” of these circumstances. Businesses often attempt to use independent contractors to cut down on employee costs. But in many cases, they simply don’t know the difference. Not knowing can expose the company to taxes, penalties, and other liabilities. Employees are entitled to certain benefits. Denying these benefits because of incorrect categorization can land a company in hot water. A business can also get in trouble if it fails to treat workers as employees for purposes of overtime.
Let Our Attorneys Help With Business and Employment Questions
Running a company is difficult enough without employment, labor, and other business law issues. Let us handle those for you. Our attorneys can help ensure that your independent contractor relationships are in line with legal requirements. For Connecticut business law questions, turn to Aeton Law Partners today.