Employee or Independent Contractor? Why it Matters
Misclassifying employees as independent contractors can have a significant negative impact on your roofing business. An employer that misclassifies a worker can face costly fines, civil damages, tax liability, and may even face criminal liability.
In the eyes of the IRS, a worker can either be classified as an employee or an independent contractor, depending on the level of control an employer has over a worker. Employers give employees a W-2 tax form, while independent contractors get a 1099 tax form. Generally, taxes are automatically deducted from a W-2 employee, whereas independent contractors are responsible for calculating their own payroll taxes and submitting that sum to the government on a quarterly basis. Misclassifying an employee as an independent contractor can expose your company to tax liability, monetary penalties, and even possible criminal liability.
Wage Law Implications
Both federal and state law impose minimum wage and overtime pay requirements on employers. However, those requirements only apply to employees, not independent contractors. Thus, to ensure your company is not accidentally underpaying, or overpaying, your workers, it is important to understand the legal difference between an employee and an independent contractor. Significantly, employers may be subject to substantial financial liability if they misclassify employees as independent contractors and underpay them as a result (e.g., failing to pay time-and-a-half for all overtime hours). A simple misclassification can subject a company to pay the employee two-times the amount of unpaid wages, and pay the employee’s legal costs and fees spent to obtain the unpaid wages. Misclassification may also entitle employees to initiate collective actions against the employer, which can exponentially increase the employer’s financial liability. For these reasons, it is critical that employers correctly classify their workers as independent contractors or employees.
Distinguishing between Independent Contractors and Employees
Both federal and state law establish standards for determining the proper classification of a worker, and the factors and tests applied by courts and government agencies vary depending on the statute and jurisdiction involved. Thus, it is important for Florida employers to be familiar with the relevant federal and state standards in order to protect against misclassification. While it is best to consult with an employment attorney to resolve any questions regarding classification, there are some general rules to keep in mind when classifying a worker. The main distinction between an independent contractor and an employee is the degree of control the employer has over the worker – the more control, the more likely the worker is an employee and not an independent contractor.
For instance, evidence of an independent contractor includes the freedom to set his/her own schedule, individual discretion in how to complete the job, use of his/her own tools and equipment, and he/she also works for other companies and not exclusively with your company. On the other hand, if the employer sets the worker’s schedule, directs his day-to-day work, provides the tools or equipment for the job, or limits his/her ability to work for other companies, this indicates that the worker is an employee and not an independent contractor.
Consequences of Misclassifying an Employee
In summary, misclassifying an employee as an independent contractor can expose your company to significant potential liability. Unfortunately, the distinction between an employee and an independent contractor is not always clear and may vary depending on the relevant legal standard. If you have any questions regarding the proper classification of your workers, it is advisable to consult an employment attorney within the construction industry.
If you would like to more information on proper work classifications, please contact Cotney Construction Law at (866) 303-5868, or submit a contact request form to speak with an experienced construction law employment attorney.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.
Trent Cotney is General Counsel and a director of the Florida Roofing & Sheet Metal Contractors Association (FRSA), General Counsel for National Women in Roofing (NWIR), Treasurer and a director of the West Coast Roofing Contractors Association (WCRCA), a One Voice member of the National Roofing Contractors Association (NRCA), and a member of several other roofing associations including The Roofing Industry Alliance for Progress.
Cotney Construction Law is a national construction law firm currently with seven offices located throughout Florida, Nashville, Tennessee and Mobile, Alabama with its main office in Tampa, Florida. Specializing in the representation of businesses and professionals in construction disputes and transactions, Trent Cotney is a well-known advisor and legal counsel for the roofing industry. The firm’s practice areas include construction law, litigation, arbitration, contract review, immigration, employment, contract drafting, OSHA defense, licensing defense, bid protests, lien law, bond law and alternative dispute resolution.