Independent Contractor Compliance Blog

Don’t ever allow your company and contractor to become so interdependent that neither can exist without the other.

I know this sounds overly dramatic at first blush, however, there have been several court cases in the past few years citing this as a major factor contributing to the worker being classified as an employee – instead of an independent contractor.

Workers who perform your core business are vital for your survival

Here’s an example: If your company’s core business operation (i.e. the service it provides to make a profit so that it survives as an entity) is repairing computers then the workers who actually repair the computers are vital to your business. You couldn’t repair a computer without a repair person, because he/she/they have skills your business development and accounting staff do not have. So even if you could market your service and fill a waiting list of customers who needed their computers repaired, the computers would not be repaired. If you can’t repair the computers (the purpose of your company) then you would be out of business.

On the other hand, an individual who works solely for you, repairing computers with no other source of income, becomes dependent on your company for his/her livelihood. This repairperson does not have other customers or a business development force to find new customers, nor does he/she have an accounting staff to bill and collect for services. Without your company this repairperson cannot earn a living.

In this situation the company and the repairperson are interdependent and essential to each other’s existence. If one disappears the other can no longer be sustained.

They are an integral part of the same business model

If the contractor and the company are so interdependent that neither party can live without the other then they are part of the same integral business model. In the eyes of a government agency they are indistinguishable as separate business units.

An independent contractor is an independent business entity-a separate business standing on its own

What does this mean?

• In the above example the two parties are so interdependent they are a single business, not two separate businesses.
• In a single business there must be an owner (a sole proprietorship, a partnership, or a corporation) and the employee(s).
• Employee and Independent Contractor are mutually exclusive events. You can’t be both.
• Therefore, a worker who is a vital part of a company’s core business operation, and who in turn depends solely on that company for his/her income, is very likely an employee of that company.
• If that worker is being treated as an Independent Contractor he/she is probably misclassified.

What’s next?

Do you have a consultant who has been working for you month-after-month with no end in sight?