“Creating” Independent Contractors with Independent Contractor Agreements: It Doesn’t Work That Way

We need to clear up a serious misconception about independent contractors.  What many business owners fail to understand is that there is no magic formula for “creating” independent contractors.  You, as a business owner and an employer, cannot magically turn employees into contractors.  Your attorney also cannot magically turn employees into contractors.

What we are trying to tell you is that sometimes, an employee is actually an employee, not a contractor, even if you have a written independent contractor agreement.  There is nothing you can do to change that, short of changing the actual nature of the worker relationship.

Hiring independent contractors can be preferable to hiring employees.  As a small business owner, you have a lot less responsibility for contractors.  We have written before about the importance of properly categorizing workers (Are My Independent Contractors Actually Employees!?).  You may recall that misclassifying employees as independent contractors can put your small business on the hook for significant penalties.  You may also recall that the primary test for classifying a worker is “control,” i.e., employers exhibit control over employees, but in fact have very little control over independent contractors.

Many employers realize there is a difference between employees and independent contractors, and they strive to do what they can in order to properly classify workers.  Unfortunately, it is a relatively common misconception that all workers can be classified as independent contractors, so long as you use written independent contractor agreements.

This is not true.  A number of factors are used to determine whether or not a worker is properly classified as an independent contractor.  Generally, all of these factors indicate whether or not the employer exhibits “control” over the worker.  There is no magic formula for creating an independent contractor relationship, and having a written independent contractor agreement is just one of a number factors.

Because of this, neither a business nor a business’s attorney can create an independent contractor relationship where none exists.  Your attorney can draft you an independent contractor agreement, but your workers may still be misclassifed.

What you can do is change the nature of the relationship, but keep in mind that you will necessarily have less control over your workers if they are independent contractors.  Just look at the factors for classification: contractors control their own schedules, they are usually highly trained (and are not trained by the employer), they use their own equipment, and they can accomplish their work in the manner they see fit.  As the employer, all you really get to control is the independent contractor’s final work product.  If this is the type of relationship you want to create, then an independent contract relationship is appropriate.  In contrast, if you expect to have more control over your workers, then they are probably employees.

 

The law is always changing.  We cannot guarantee that the information provided herein is current and accurate.  Every situation is different.  Do not refrain from seeking legal advice from a lawyer because of anything contained in this blog.  Consult an attorney for individual legal advice regarding your own situation.