KemLaw

It’s not uncommon for companies of all sizes to utilize independent contractors as a way to reduce employee costs.

It’s also not uncommon for employers to mistakenly label someone as an independent contractor who fails to meet the criterion under Connecticut law.

Why does it matter?

Put simply, a failure to properly classify a worker comes with substantial penalties including:

• liability for payroll taxes and possible penalties;
• liability for claims of employment discrimination or wrongful discharge;
• liability for claims for workers compensation, or unemployment compensation;
• liability for denial of participation in employee benefit plans, including retirement plans, profit-sharing plans, health insurance plans, and COBRA; and
• liability for overtime claims under state or federal wage and hour laws.

So how does one make the distinction?

Under Connecticut law, the “fundamental distinction between an employee and an independent contractor depends upon the existence or nonexistence of the right to control the means and methods of work.”

What does that mean?

Many factors are considered when determining whether an employer has the right of control over the individual. Ordinarily, if the employer (a) retains the right to discharge; (b) pays the employee at an hourly or salaried rate; (c) establishes the hours to be worked; (d) furnishes the necessary equipment or materials for the job; and (e) monitors the individual’s work and retains the right to take corrective measures if performance is unsatisfactory, the individual is deemed to be an employee and not an independent contractor.

Using the federal Fair Labor Standards Act for further guidance, it states that “workers who are economically dependent on the business of the employer, regardless of skill level, are considered to be employees, and most workers are employees. On the other hand, independent contractors are workers with economic independence who are in business for themselves.”

Interestingly – the first debates on this topic followed the enactment of the Social Security Act of 1935 and early efforts to collect employer taxes to cover the expense of what were then called “old age benefits”. To collect fairly, the government needed to devise a way to distinguish between employees for which employers were required to pay a Social Security tax and independent workers.

The IRS has actually developed a 20 factor test to determine whether an individual is an employee or an independent contractor. You may read more about that here: (http://info.kemlaw.com/independent-contractors/).

For employers, the process of classifying workers can be complicated. If you have questions about how to determine whether a worker should be classified as an independent contractor or an employee in Connecticut, consider contacting a law firm with extensive experience in this area of the law. The attorneys at Kainen, Escalera & McHale each have over 20 years of experience in all aspects of employment law and the rights of employers. Please contact us if we can help you.

The information provided above is made available by Kainen, Escalera & McHale, P.C. for educational purposes only. It is not intended to provide specific legal advice to your individual circumstances or legal questions. You acknowledge that neither your reading of, nor posting on, this site establishes an attorney-client relationship between you and our law firm, or any of the attorneys in our firm. This information should not be used as a substitute for seeking competent legal advice from a licensed professional attorney in your state nor is it provided for the specific purpose of soliciting your business on any particular matter. Readers of this information should not act upon anything communicated in it without seeking professional counsel.