Independent Contractor or Employee – 8 Factors to Consider

“Benefits” of Having Independent Contractors

Many business owners prefer to use independent contractors rather than hire employees.  While on the surface, it may appear to be a great solution to avoid taxes, easier record keeping, no unemployment taxes or health insurance premiums, it is not that simple.  Your worker could be determined after the fact to have “really” been an employee despite how you agreed to characterize the relationship.

Classification Test

So how can you know for sure whether you can classify your worker as an independent contractor?  You can’t, really.  There is no hard and fast test as to when a worker can be an independent contractor.  Instead, there are a number of “factors” that would be weighed by an agency or a court to determine whether the relationship is more properly an independent contractor relationship or an employment relationship.

Factors to Consider

Furthermore, the list of factors you look at depends on what government agency you are dealing with.  The Internal Revenue Service has a different list than the Federal Department of Labor, both of which are also different than the Colorado Department of Labor and Employment.  However, they all review many of the same issues  While this is not a comprehensive list, here are some factors to consider:

1. Exclusivity – do you allow your worker to work for anyone else? If not, you may have an employee.
2. Work Product – if you dictate how your worker will do the work, you may have an employee. While you can’t dictate how the work will be done, you can say how the work product should turn out and provide a deadline.
3. Schedule – do you tell your worker when they will work for you? You may have an employee.
4. Rate – Do you pay your worker a salary or hourly rate? If so, you may have an employee.  Payments at a fixed or at a contract rate support a claim that the relationship is an independent contractor relationship.
5. Training – Do you provide specialized training for your worker to perform the tasks required? You may have an employee.
6. Tools – Do you provide tools such as a computer for your worker to perform the tasks required? You may have an employee.
7. Payments – Do you make payments directly to your worker? You may have an employee.  Payments made to the worker’s business or trade name help support a claim that it is an independent contractor relationship.
8. Location – Do you require your worker to come to your place of business to perform the tasks required? You may have an employee.

If you answered yes to any of these, you may actually have an employee rather than an independent contractor.

Colorado’s Factors

The Colorado Department of Labor and Employment sets forth a list of terms for an independent contractor relationship.  If all of these requirements are satisfied, the relationship is “rebuttably presumed” to be an independent contractor relationship.  That means that the State would then have the burden of proving that it is an actually an employment relationship.  Among the required terms are that payments go to the independent contractor’s trade name or separate business, that certain working conditions are agreed, and that disclaimers are given telling the independent contractor that they must obtain their own insurance, etc.

In Summary

To protect your business, meet with an experienced attorney to create an independent contractor’s agreement that addresses all of these and many others.

Sam Ventola has a wide variety of experience in litigation, employment, legal education, and mediation. When he is not protecting business owners from incorrect worker classification, he enjoys spending time with his family, especially his grandson Jack. 

Ventola Law serves the Denver Metro area including Arvada, Aurora, Boulder, Brighton, Commerce City, Castle Rock, Golden, Lakewood, Littleton and Arapahoe, Adams, Douglas and Jefferson Counties.