We Contracted Directly With a Worker...How Long Can We Keep This "Temporary" Independent Contractor?

27 November 2012 Labor & Employment Law Perspectives Blog

While some “temporary” workers are employed by a staffing agency, other workers contract directly with a company as consultants or independent contractors. In the case of these contractors, the question often arises — how long can we keep contracting with this person? While there is not a bright line answer to this question, there are best practices and sliding-scale risks that increase over time as the relationship continues. Getting the answer right is important because a wrong answer implicates potential liability under many laws that treat employees very differently than independent contractors. Some of these laws include the FLSA (minimum wage and overtime requirements apply to employees but not to independent contractors), workers’ comp and unemployment (premium payment obligations required for employees but not independent contractors), IRS rules (income tax and FICA requirements apply differently to employees), and ERISA (benefits may be required under company policy for employees). While duration is only one factor among many that determines whether a worker is a contractor or an employee, six months is usually recommended as a safe duration and one-year should usually be considered an outside limit, assuming that the other independent contractor criteria are met. Every extra month the contracting relationship is extended, the worker starts to look more and more like a W-2 employee. Regardless of the duration selected, employers should define the limit in writing so there is a specific “term” in place.

In some cases, of course, workers will be considered employees no matter what they are called because the typical indicia of the independent contractor status is not present —they do not have federal tax IDs, they do not have a capital investment in their own business, they do not hold themselves out to other employers as being available to perform work, they do not control the manner and method of their work, and, in essence, they are doing the same work, in the same way, as other employees.

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