Debunking the Myths
Reality: While is is definitely a factor in support of a determination that the individual is an independent contractor, if other factors do not support that the relationship/engagement is that of an independent contractor the fact that it is the individual’s desire loses its value. In fact, many times an individual will request to be classified as an independent contractor in order to realize the tax advantages, which is one of the things with which the government has issue.
Myth: If the individual wants to be classified as an independent contractor, then it is fine to engage them as such and there will be no risk of misclassification, because it is their choice to be independent.
Reality: While this may seem logical and true, it is not. We have seen many independent contractor situations change over time in either the way the engagement is handled and/or the way that the independent contractor is running his/her business, which could actually cause a need for reclassification to W2 employee rather than independent contractor. As such, regular assessments should be conducted in the event that the engagement is ongoing.
Myth: If a thorough assessment of worker classification was initially conducted and the determination was that both the individual and the engagement were appropriately classified under independent contractor status, then there will never need to be further review, even if the engagement continues.
Reality: While a contract between the parties is absolutely essential to demonstrate the engagement structure (among myriad other legal and business reasons) it is never a conclusive manner by which to determine proper independent contractor classification. If the other facts of the arrangement or the individuals "business" situation fail to support independent contractor classification, the contract will hold very little weight in the defense.
Myth: If we have a written contract in place that expressly states that the engagement is that of an independent contractor and not an employment agreement with all of its associated requirements, the existence of such contract is sufficient evidence of proper worker classification.
Reality: While incorporation or even conducting business under a fictitious business name is a factor that helps in the legal defense that the worker is not a employee, it is never a conclusive determination simply based on this single fact. The government and the courts have seen enough cases whereby even under a corp-to-corp contractual arrangement, the day to day reality of the relationship is that of employer/employee rather than business to business.
Myth: If the worker is doing business under a C or S Corp, LLC, or fictitious business name the engagement will automatically qualify for independent contractor status with no need for additional assessment.