Understanding Independent Contractors: A Legal Analysis - Research Paper

Introduction

Independent contractors, as stipulated in Act 72 of the Fair Labor Standards Act are often associated with performing compensated duties such as consultants, brokers, or agents for businesses and individuals, and they are instead not considered as employees of such firms (Weil et al. 20). It is reasonably easy for an individual to get confused about what an independent contractor is and when to consider an individual as an employee. Therefore in this discussion, the analysis will be made on requirements of being considered an independent contractor, benefits gained by employers for hiring independent contractors in consideration of state and federal employment laws, and consequences of mischaracterizing an employee as an independent contractor by a company.

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Requirements of Being Considered an Independent Contractor

There are several basic business start-up requirements that independent contractors need to fulfill for their businesses to be considered legitimate and comply with the government rules despite the type of work or industry one is going to engage in. The independent contractor is obliged to choosing a business name necessary in appearing to the business cards and invoices of the potential transactions. This step will require one to fill a DBA or a fictitious business name statement that is less expensive and entails little procedures; you can engage the county clerk's office to get it done. According to Pearce and John, making a registration of the business name protects the proprietor from enforcing any contracts signed under the unregistered name, and it also allows the contractor to open the business account with the banks as proof to this are directed on the properly registered name of the business (67). For an employee's case, there are no registration requirements needed as the personnel are expected to work under the owners or company directors. As preceded earlier independent contractors can also be called consultants therefore, they work as proprietors.

Obtaining a Tax Registration Certificate; it is mandatory for every business, either a home-based or single owner operation business register with the local tax collector for the acquisition of this certificate, the business license, according to the U.S laws. Although many independent contractors in many instances fail to understands who they are to the companies and the consequences they are subject to whenever an evasion of their tax payment is spotted by government agencies.

Unlike employees, independent contractors have an obligation to make payments of the estimated income and self-employment taxes. Considering the case of average employees charged with requirements of meeting social security and medical taxes and federal and state income taxes withheld from their paychecks, contractors face a different pinch of handling their own fees. The U.S federal requires an independent contractor to make four installment payments, especially when the party involved generates an estimated gross income of $3000 and discloses a report on their business income to the IRS, especially when the business realizes a total revenue of more than $400.

Benefits of Hiring an Independent Contractor as Opposed To An Employee

Employers are offered a full-time guarantee that they will not be regularly get subjected to compliances with payroll tax requirements as compared to those involved when hiring employees. This pro provides a more favorable field for employers whose business stipulates its focus on maximum profit attainment as it minimizes costs incurred on extra taxes and personal motivational expenses (James et al. 467). Hiring independent contractors lessen the burdens of regulations and boat-load laws that employees get attached to from the federal and state governments thus reducing legal risks to employers (Weil et al.14). For instance, most of the work rules, overtime and salaries are regulated by the federals and state governments (James et al. 894), forcing employers to carry on these burdens. Employers benefit from eased payroll administrations provided that there is an appropriate classification of the based on administration payroll and associated items. It reduces the lag time involved in employee hiring between hiring and full productivity periods; due to their specialized skills, independent contractors, unlike employees, take less training time, thus improving on efficiency, speed, and work. Nevertheless, employers hiring independent contractors enjoy more significant work completion with specialized handling skill sets that enables employers to avoid making hires of full-time positions as the job may not be providing a permanent position warrant to the employee. There is constant flexibility in hiring independent contractors, for instance, independent contractors can be brought on as needed and no needs of firing such workers when changes in workloads are reflected on the organization's performance. This exercise also impacts on constant increasing returns and productivity of the employers as they make analysis and evaluations of the previous contractor work thus making vital decisions on whether inviting the contractor back for unforeseen future contracts.

Before making any decisions of hiring an independent contractor in the business, employers have several factors to consider or put in mind; when the work demands application of a professional and minimal supervision, when the worker onboard has more significant competencies and skills and requires little or no guidance when showcasing his potentials, when the work to be accomplished is a short-term project that is forecasted to be done in a defined period of time (James et al. 278) and the nature of the work to be done, for instance, hiring an individual to offer security services during the organization's operation.

Legal Implications for Employers When Workers Are Considered Employees or Independent Contractors Under State and Federal Employment Laws

Employees are entitled to protections from the federal and state laws that do not take part in independent contractors' case; a lot of independent contractors' rights are mostly governed by the state's contract law. Many employers have been spotted inadvertently misclassifying workers as independent contractors to avoid making compliances to these laws. Laws protecting shielding workers against unlawful retaliation and discrimination, including; The Equal Pay Act, The Florida Civil Rights Act, Title Of the Civil Rights Act 1964 and The American with Disability Act; and many other rights apply to employees but not independent contractors. Therefore employers are responsible for answering or appearing before the court for such violations of their employees unlike when they hire independent contractors where such laws are not given a 'first-eye' focus.

Independent contractors have no entitlements to unemployment insurance, nor do they receive compensations in case of injuries while performing organizations' duties. This becomes beneficial to employers considering independent contractors rather than employees as it helps cut down on costs (James et al. 364). According to James et al. the FLSA, governing minimum wage policies over time and does not apply to independent contractors (379). This denies independent contractors' rights of demanding overtime payments or minimal wage from their employers, an implication that primarily affects employers when the workers in place are employees as such rights are an obligation to employers.

Employers have more significant opportunities for preventing their workers from forming and organizing unions in case the independent contractors' argument as they are not covered by the National Labor Relations Act. This case is considered different when hiring employees is the organization's policy. Employees enjoy this Act's rights; some use this as a weapon for the formation of resistant groups at the workplace, making it difficult for employers to design by-laws responsible for stating the relationship at the workplace.

Employers are not expected to verify whether the independent contractors are U.S citizens or whether covered by a work visa. This kills worker exploitation cultures, especially the low-wage migrant workers. It is estimated that more than three million seasonal workers and migrants are expected to reside in the United States every year and that much of exploitation cases experienced by migrants goes unreported. Therefore employers who hire employees rather than independent contractors may suffer the "disease" of fines in case of exploitation of such workers and report made.

Consequences to An Employer If It Mischaracterizes the Status of Its Employee as An Independent Contractor

Understanding of how such managers get caught is essential when making preventive measure as employers in cases of mischaracterization of these workers; individual workers may believe they have been mischaracterized and file complaints to the U.S Department of Labor, secondly, when a worker classified as independent contractor tries to file employment benefits or compensation claims, and when the federal and state government agencies make frequent audits in search of misclassified workers. In case of the above circumstances employers may face several penalties including but not limited to; a $50 fine for each Form W-2 the employer failed to sign due to mischaracterization of the worker, tax penalty payment failure results to 0.5% of the unpaid tax liability in every month up to 25% of the total tax liability (Weil et al. 14), and for failing to withhold income tax, a 1.5% penalty of the wages, 40% of the FICA taxes and 100% of the matching FICA taxes the employer was expected to pay.

However, further suspicion by IRS on fraud and intentional misconduct by the employer can result in additional fines and penalties. For instance, the employer may be entitled to 20% of all wages paid and 100% FICA taxes to be shared between the employee and employer (Pearce and John 17). Nevertheless, criminal penalties on every misclassified worker of up to $1,000 and one-year imprisonment can also be imposed on the employer.

Conclusion

When deciding on whether hiring a worker as an employee or an independent contractor, it is advisable for both employer and the worker to establish a weighing measure based on analyzing the benefits and drawbacks to hiring or being hired as an independent contractor or employee. From the discussion; being borrowed or hiring an independent contractor is quite effective than hiring a worker as an employee. The study above states the significant benefits of acquiring independent contractors such as minimal or no supervision, quality work is done reduced costs of compensation, unemployment cover and other expenses such as overtime and minimum wage as required by employees, and wide proficiencies, skills, or expertise.

Works Cited

A. James Barnes, J.D. Terry Morehead Dworkin, J.D. Eric L. Richards, J.D. "Law for Business Thirteenth Edition," All of Indiana University 1-1089 (2009).

Pearce, John A. "The Future of Independent Contractors and Their Status as Non-Employees: Moving on from a Common Law Standard." Hastings Bus. LJ 14, (2018): 1. Retrieved from:https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/hbuslj14&section=3

Well, David, and Tanya Goldman. "Labor Standards, the Fissured Workplace, and the On-Demand Economy." Members-only Library 20.1-2 (2016). Retrieved from: http://www.lerachapters.org/OJS/ojs-2.4.4-1/index.php/LERAMR/article/download/3097/3072