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How to know if your worker is an independent contractor or employee.

On Behalf of | Feb 14, 2020 | Business Law

We have all heard the discussions surrounding whether your employees are actually employees or if they can be considered independent contractors. If you’re a small business owner, you might want your team to be independent contractors because then you don’t have to pay payroll taxes, overtime, unemployment insurance, worker’s compensation insurance, or worry about all the things that you have to worry about with employees. Like supervision, scheduling, performance reviews, and verifying employment eligibility. Trying to stretch things one way to fit your budget can come back and bite your business. Ultimately the State of North Dakota, the IRS, Job Service of North Dakota and Workforce Safety & Insurance don’t care if you think you have an independent contractor agreement established. They all have their own analysis and methods to determine if you are employing an independent contractor or an employee. All the varying methods can make compliance overwhelming but very rarely is it confusing. There are many overarching themes that can ensure small businesses properly classify their employees. The state of North Dakota uses a “common law test” which is a series of 20 items used to determine whether or not an employee is an employee or independent contractor. The “common law test” focuses primarily on how much control a business has over a worker.

Here are 5 of the ‘Common Law Test’ items that cross reference other agencies that are a good test to determine if your worker is an independent contractor:

1.Scheduling  If you are scheduling your employees for certain hours, even if you don’t tell them what to do during those hours, they are likely employees. Scheduling a worker for specific or set hours demonstrates control. Independent contractors, on the other hand, can work from anywhere they like and whenever they like.
2. More than one client. If your worker would be punished, penalized or otherwise discharged for working for or soliciting business from another similar or competing company, you likely have a  employee. Whereas, an independent contractor can perform services under multiple contracts for multiple firms at the same time.
3. Tools and materials. If your business provides tools, equipment and materials for the work to be done by the worker, it is likely an employee – employer relationship. Independent contractors generally provide their own tools, materials and equipment.
4. Order or sequence set. If a worker must perform work in an order or sequence set by the employer, that factor shows the person is not free to follow their own methods or pattern of work. Often, an order won’t be set or will be done so infrequently. This will still be sufficient to show control as long as the employer retains the right to do so. As mentioned above, independent contractors are free to work when they want, how they want and where they want.
5. Doing work on the premises of the person for whom services are being performed. If the work is performed on the premises of the person for whom the services are performed, that factor suggests control, especially if the work could be done elsewhere. And just because the work can be done off site does not mean that the person is not an employee.
This depends on the nature of the service and the extent to which an employer would require the worker to perform such services on the employer’s premises. The test is if the employer has the right to compel the worker to work at a certain place. — There are several others on that list including how workers are paid, how business expenses are handled, and whether a service is available to the general public. But basically, if you dictate when they work, where they work or how they work at all, chances are you have an employee. Read the full North Dakota Independent Contractor list here. If you are considering growing your business by adding to your team, we urge you to choose appropriately. If budgetary items are a concern, force yourself to grow slowly. The penalties for misclassifying can break a small business. If you fail to choose appropriately and it is determined that your independent contractor is indeed an employee, these are some of the liabilities you might be responsible for: -Retroactive Unemployment Insurance Premiums + Penalties -Retroactive Worker’s Compensation Insurance Premiums + Penalties -Retroactive Taxes: Federal Unemployment, Social Security, Medicare + FICA, interest + Penalties -Fines for failing to have an I-9 on file for the employee -The unemployment claim in question -Potential Lawsuits for misclassification of employee This is not an easy decision and one that should not be entered into lightly. If you are past the point of decision making and you fear you have made the wrong choice, reach out to one of our attorneys at Nilson Brand Law and we can get your course corrected in the least amount of time with the least amount of penalties. Contact one of our business lawyers today.