I remember reading articles after the federal tax law changes went into effect last year that we would begin to see more and more folks seeking classification as independent contractors rather than as employees of the businesses that they work for. Indeed, over the last generation, millennials seem to be finding jobs more and more as contractors rather than employees.
These new graduates into the workforce bring special skills with them that they can share with a number of businesses. By working a few hours a week for a number of businesses, they can establish their own schedules, freelance their work, and earn a living in a way that many never considered when folks like me were getting out of college.
With work being done these days at home, in coffee shops, or even at the beach, contracting seems like an attractive way to make a living.
And the idea has its appeal to business owners too. Employees bring costs and liabilities with them. Hire an employee and you will be paying for workers’ compensation insurance and probably be incurring unemployment liability when the relationship ends. You will be responsible for payroll withholdings and state and federal tax payments too. Once you are done training the employee and showing him how the job gets done, you need to worry about retaining him before he goes to work for a competitor.
The idea of hiring independent contractors to get work done at a business seems to make a lot of economic sense. However, just because you classify a worker as an independent contractor, it does mean that the worker is an independent contractor under the law.
In Connecticut, our courts have established the so-called “ABC test” for determining whether or not a worker is an employee or an independent contractor. And generally the law will default to classifying a worker as an “employee” unless it can be proven that the worker fits squarely under the definition of “independent contractor.”
Under the “ABC test,” an employer must first show that the worker has been and will continue to be free from control and direction in connection with the performance of the work, both under his contract for the performance of service and in fact.
Second the employing party must show that the work is performed either outside the usual course of the employer’s business for which the service is performed or is performed outside of all the places of business of the enterprise for which the service is performed.
Finally, the employing party must prove that the worker is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.
The easiest way to see this is by considering an accountant’s office. The office is in the business of providing accounting services. If the business decides that it has an overflow of work during tax season, it might decide to bring on an extra few CPAs to get tax returns done between February and April.
If the office farms out the work to the CPAs and the CPAs perform the work at their own places of business and bill the accountant for the service, that is likely going to be an independent contractor relationship.
But if the accounting firm brings the CPAs into its own office, assigns the CPAs work to do during regular hours at the office and pays them a certain rate of pay for hours worked, that will look more like an employee/employer relationship, and all of the liabilities of that relationship will follow.