Employment Law – What’s the Difference Between an ‘Independent Contractor’ and an ‘Employee?’
We’ve partnered with the law firm of Szaferman, Lakind, Blumstein & Blader, P.C. to offer advice as to what may constitute being an independent contractor versus being an employee.
By Melissa Ruff
An employer may save a lot of money working with an “independent contractor” (lower taxes, no benefits, no workers compensation or unemployment insurance premiums) compared to an “employee”, but if that label is a legal fiction, the potential costs to an employer are steep.
If a complaint is filed by the supposed independent contractor with state or federal agencies, or he/she sues the employer, the employer may face claims for unpaid taxes, wages, and benefits, along with civil fines, penalties, attorneys’ fees, costs and interest. A criminal investigation, along with criminal charges and penalties, may also follow.
How can you tell which is which? New Jersey courts have turned to common law (law developed by the courts over the years) to come to the conclusion that an employee
(or “servant”) is employed by an employer (or “master”) “to perform service in his affairs whose physical conduct in the performance of the service is controlled or is subject to the right to control by the master…An independent contractor is a person who contracts with another to do something for him but who is not controlled by the other nor subject to the other’s right to control with respect to his physical conduct in the performance of the undertaking.” Sodexho Operations, LLC v. Director, Div. of Taxation, 21 N.J. Tax 24, 39-40 (2003) (citing Restatement (Second) of Agency, § 2 (1958)); see also Seavy, Handbook of the Law of Agency § 10 at 5.
Courts consider a number of factors in deciding the person’s status, including:
- The extent of control which, by the agreement, the master may exercise over the details of the work;
- Whether or not the one employed is engaged in a distinct occupation or business;
- The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision;
- The skill required in the particular occupation;
- Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;
- The length of time for which the person is employed;
- The method of payment, whether by the time or by the job;
- Whether or not the work is a part of the regular business of the employer;
- Whether or not the parties believe they are creating the relation of master and servant; and
- Whether the principal is or is not in business.
Sodexho Operations, LLC v. Director, Div. of Taxation, 21 N.J. Tax 24, 40 (2003) (citing Restatement (Second) of Agency, supra, § 220(2)).
For someone to make the argument that they’re an employee, not an independent contractor, they don’t have to show actual control of the “physical conduct in the performance of the service” but only that the person’s work “is subject to the right to control by the master.” Id. at 39.
If there is a written contract between the parties stating one is an independent contractor, it’s just one factor that’s considered. Just because a contract states someone is an “independent contractor” doesn’t necessarily make it so. An employer who thinks these kinds of contracts will shield it from liability may be making a very expensive mistake.
These kinds of cases are decided on a case by case, fact specific manner. If you think you’re an employee misclassified as an independent contractor, you should consult an attorney to go over the facts of the situation to see if you are owed wages, taxes and benefits.
We’ve partnered with the law firm of Szaferman, Lakind, Blumstein & Blader, P.C., to bring you this sound advice and if you have further legal questions, you can send the firm a text, by texting the word ‘LAW’ to 89000, or email them directly via to the link provided mailto:firstname.lastname@example.org.