Misclassifying Workers as Independent Contractors: What Employers Need to Know

Idaho businesses often use independent contractors because they think it saves them money, but if these same businesses don’t follow the rules, it will cost them a whole lot more than they bargained for with potential criminal issues and severe monetary fines.

“That’s why we’re here,” explained Idaho Department of Labor Director Ken Edmunds. “We can help clarify when an employee is an employee or an independent contractor. If an Idaho business is considering the option of using independent contractors, the business should call us first so we can walk through the rules and make sure workers and independent contractors are properly classified. “

A memorandum of understanding signed by the Idaho Department of Labor and the U.S. Department of Labor Wage and Hour Division in August of 2015 means the two agencies will work together to protect Idaho workers by preventing their misclassification as independent contractors or other nonemployee statuses. Both agencies will share information and coordinate law enforcement under the agreement.

Employers, are your workers employees or independent contractors?

Some of the differences employers need to consider when classifying their employees and independent contractors are as follows:

Employees:

• Perform service for the company for an extended period of time.
• Receive incentives from the company such as insurance, vacation pay and retirement benefits.
• Are paid hourly or are salaried, and pay is received at regular intervals such as monthly, weekly or bi-weekly.
• Work under direction from the company regarding how, when and where work will be completed.

Independent contractors:

• Can hire others to perform the work for the company.
• Have the possibility of profit or loss in the project.
• Are allowed to make their services available to others.
• Do not have set hours.
• Are responsible for their own tools, materials, equipment and travel or business expenses.
• Advertise their services including online, in the newspaper, with business cards and in the phone book.
• Are not required to work under a licensed individual while performing job duties.

Idaho is the latest state to sign on to the US Department of Labor’s effort to level the playing field. Alabama, California, Colorado, Connecticut, Florida, Hawaii, Illinois, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New Hampshire, New York, Rhode Island, Texas, Utah, Washington, Wisconsin and Wyoming have signed similar agreements.

Two resources Edmunds referred can be downloaded from the department’s website: Independent Contractor or Employee and Construction and Independent Contractors

A third, designed for independent contractors and employees can be found on the USDOL website:  Fact Sheet 13: Am I an Employee? Employment Relationship Under the Fair Labor Standards Act (FLSA)

The Wage and Hour division at the Idaho Department of Labor can be reached at (208) 332-3579.