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Avoiding liability using independent contractors - part one
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In order to reduce costs, many employers are utilizing “independent contractors” without using the proper safeguards to insure that these individuals won’t be deemed “employees.” This can come back and bite a company in a couple of ways. First, California is looking for revenue anywhere it can be found, and there is more scrutiny on companies for failing to withhold taxes on alleged independent contractors. Second, disgruntled former “independent contractors” can easily claim they were in actuality employees, which entitles them to certain payments, such as reimbursement for any expenses incurred in performing their work.
When starting an independent contractor relationship, here are some basic preliminary steps to limit the potential for claims down the road.
1. Have the individual sign an Independent Contractor agreement. Handshakes and emails don’t cut it. Without a written agreement, it will be very difficult to get rid of a claim or lawsuit alleging employee status. The agreement should spell out in detail the nature and terms of the engagement. Avoid using terms like “at-will,” because they apply only to an employment arrangement. It’s best to have an agreement drafted by an employment attorney or professional who can craft the document for the individual situation.
2. Obtain business cards, marketing materials, website addresses, and any other documents that show the independent contractor is seeking business from other companies. Keep these in a separate folder, along with the independent contractor agreement. This information is useful to prove the individual is in business for themselves, rather than an employee of one company.
3. Ask the independent contractor to provide proof of worker’s compensation insurance for any individuals he or she is employing to help perform the duties and functions your company has contracted for.
4. Make sure the independent contractor will be sending written invoices for payment. This makes it easier to resolve potential disputes over payment down the road, and also avoids the appearance that wages are being paid to an employee.
The next article in the series will address managing independent contractor relationships to avoid the appearance of an employer-employee relationship.
