Q&A January 2012 (Originally published in Florida Today in January, 2012)
Edward J. Kinberg
I am setting up a new business and am considering using independent contractors instead of employees. Can I do this?
While you can use independent contractors instead of employees, you need to make sure you understand the difference between the two as improper classification of an individual as an independent contractor can result in substantial civil and criminal penalties.
This is a fairly complicated issue as there are significant differences in the standard applied by different Federal and State Agencies, Federal Courts and Florida Courts for determining an individual’s status. However, there is one common theme, control of the individual’s daily activities. The more control you have over the individual, the more likely it is that the individual will be considered an employee.
For example, if you set the individual’s hours, provide his/her equipment and supplies and determine how much and when he/she is paid, it is likely the individual will be considered an employee. Another significant factor is the individual’s obligation to continue working for you until a task is completed. As a general rule, an employee can quit or be fired at anytime, whereas an independent contractor is obligated by contract to complete contracted tasks.
Another item to consider in determining whether an individual should be considered an employee or independent contractor is the extent the individual’s work is devoted to your business. If 100% of his or her work is performed for your business, the individual does not advertise or otherwise make his or her services available to the other businesses or his or her services are crucial to the success of your business, it is likely the individual will be considered your employee.
If you intend to use independent contractors, you need to implement a written agreement that clearly shows the individual’s independence. As a starting point, the individual should have his or her own business license, be set up as a corporation or LLC under Florida Law, be responsible for paying all taxes, provide his or her own insurance and have his or her own location to perform the work.
The bottom line is that if you feel you need to closely control the individual’s work, you need to hire them as an employee.