Independent Contractors and Contingent Workforce Arrangements

Independent Contractors

Companies often retain individuals who render services to or on behalf of their businesses as independent contractors rather than as employees. Businesses can benefit from this arrangement by potentially being able to avoid having:

  • To provide employee benefits
  • To comply with a myriad of wage and hour and other employment laws
  • To provide workers’ compensation insurance coverage
  • To withhold federal and state taxes
  • To pay the employer’s portion of payroll taxes.

However, a company’s erroneous classification of someone as an independent contractor (as opposed to as an employee) can have serious consequences and can result in significant liabilities. For example, it could result in assessments and penalties for a variety of things, including:

  • Unpaid payroll taxes
  • Failing to withhold federal and state taxes
  • Failing to provide workers’ compensation insurance coverage
  • And, in certain instances, companies can even be order to stop doing business altogether until workers’ compensation insurance coverage is secured.

Erroneously classifying someone as an independent contractor rather than an employee can result in significant liability for:

  • Wrongful termination and other employment-related claims
  • Wage and hour claims such as failure to pay overtime and/or provide rest breaks and meal periods
  • Failure to pay business expenses
  • Failure to provide and pay certain employee benefits (e.g., vacation, sick leave, health insurance, 401K, stock options, etc.)

California companies are increasingly being audited by the California Employment Development Department (EDD) and the U.S. Internal Revenue Service (IRS) for unpaid payroll taxes and failing to withhold federal and state taxes on the basis of allegedly having misclassified California workers as independent contractors rather than employees. This, in turn, is causing those allegedly misclassified as independent contractors to take separate, independent legal action for various employment-related claims against the alleged “employer” covering a multi-year period. Given that many statutes protecting employee rights entitle a successful litigant to collect attorneys’ fees and costs in addition to any proven damages, erroneously misclassifying someone as an independent contractor can have significant consequences.

As a result, it is imperative that companies not only ensure that they are properly classifying individuals as independent contractors but also ensure the relationships they seek to structure are done in such a way as to have a substantially greater degree of likelihood that they will indeed be upheld, if challenged. In order to determine whether an individual is an employee or an independent contractor, a multitude of factors governing the relationship between the worker and the business must be examined, with the primary focus on the degree of control the business has over the worker being weighed against the degree of independence the worker has from the business.

At Miller Legal Group, P.C., we work with clients to establish defensible independent contractor relationships and, after appropriate analysis, prepare well-drafted independent contractor agreements. In addition, we defend the rights of our clients in the event of a government audit or other challenge to the clients’ classification of individuals as independent contractors.

Contingent Workforce Arrangements (Temporary and Leased Employees)

Many companies choose to grow or operate their business by utilizing staffing companies to help them find qualified candidates and, in many cases, to provide some level of administrative and occasionally even supervisory oversight of those individuals. For a fee, these staffing companies and professional employer organizations often recruit, hire, fire, pay and, to a lesser extent, direct the individuals who they supply to a given company.

In addition, because these staffing companies can leverage and provide small companies with better rates for health, workers’ compensation and employment practices liability insurance, many businesses often choose to retain the services of a staffing company or professional employer organization. In short, for many businesses, temporary or leased employees fulfill a variety of important functions and can offer significant benefits.

However, businesses need to understand that with those benefits come a variety of obligations, risks and exposure, including the prospect (and, in some cases, likelihood) of “joint employer” liability for wage and hour, harassment and discrimination, leave of absence and failure to accommodate, workers’ compensation, and other claims. At Miller Legal Group, P.C., we advise and educate clients about the potential impact and potential corresponding liability of certain contingent workforce arrangements (e.g., temporary and leased employees) and we advise clients about how best to structure those arrangements in order minimize the potential for liability.

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Contact a Los Angeles and Orange County Labor and Employment Attorney

For more information about what we do at Miller Legal Group, P.C., our non-traditional billing arrangements, or to schedule a Litigation Avoidance consultation with an experienced Los Angeles and Orange County labor and employee relations attorney, please contact us at our South Bay employment law firm by e-mail or by telephone at (310) 426-2650.