Perhaps the most relevant question in the workplace today — and one that’s becoming harder to answer — is “whom do you work for”? Increasingly, employers would like for the answer to that question to be “yourself”: You take on the responsibilities of being the sole proprietor of your own independent business and simply enter into contracts to provide companies with goods or services.
That’s true for people who connect with customers on platforms such as Taskrabbit and Uber, drivers for many long-haul trucking companies, and freelancers of all kinds. And it’s a good deal for companies: They don’t have to pay social security or payroll taxes, or worry about unemployment insurance and worker’s compensation, like they do for regular employees.
But not just anyone can be classified as an independent contractor. While rules differ across states — some require the “employer” to prove its contractors are truly independent, for example, and others don’t — the Internal Revenue Service has guidelines that should send up red flags if you’re being treated like an independent contractor when you shouldn’t be. The government’s final determination will be based on a confluence of factors, but ultimately it all comes down to what degree of control a company exerts over the people who work for it. For example:
Is the company telling you exactly what to do?
The more specific the instructions you receive, the more likely it is that you’re an employee, not a contractor. Companies have the right to control the outcome of the product or service they’re purchasing, but not the precise means by which you deliver it. For instance, you would tell a contractor doing a home renovation what you wanted done, not how to do the job. Training in particular methods, wearing company uniforms, and being told where to buy materials are all characteristics of employment, not contracting.
Are you free to turn down the company’s assignments and work for other companies, too?
Independent businesses need to have discretion over whom they work for, and advertise their services openly. Signing exclusivity contracts, or being turned down for further work because you pass on a job, is a sign that you’re probably an employee. The IRS would also look at the duration of the relationship: If a company creates an expectation that the work is permanent, that starts to look more like employment, as well.
Do you pay your own expenses?
Independent contractors have investment in their own businesses and have to cover their own expenses, such as gas and maintenance for trucks, or an independent maid’s cleaning supplies. Sometimes, that means taking a loss: If it’s possible for a worker to lose money through paying out more in expenses than they earn in revenue, they’re more likely to be a contractor.
The Department of Labor is paying more attention to these issues lately, partly in response to a spate of lawsuits — covering job categories from FedEx drivers to exotic dancing — alleging misclassification by employers. And the penalties can be steep. So if a company says you’re an independent contractor, it should really mean it.