Blog Post: The Independent Contractor Question

When I visit a client site, I often ask nosey questions. "What does that person do?" "Do they have a job description?" "Would they laugh out loud if they read it?" "How are their wages calculated?" Sometimes, these questions are answered with conviction. Other times, they are answered with a sound that sort of starts out with an "ahhhhh" and ends with a "mmmmm?" This sound means "I don't have an answer to that question, but I am desperate to give you the right answer. I'm thinking. Don't bother me."

After discussion, we sometimes uncover a task that must be completed (Mental note: prepare accurate job descriptions.) Other times, we identify an opportunity for education (The FLSA cares about exempt vs. non-exempt status, not whether you pay an employee with a salary or with hourly wages). All too often, this inquiry identifies that management is trying to take the easy way out. It identifies the (occasionally dreaded) INDEPENDENT CONTRACTOR.

Why is it appealing to hire independent contractors? Because if you hire independent contractors, you avoid a certain amount of paperwork and hassle. That plumber that comes to fix your sink? She is an independent contractor. That project manager that works along side your employee project managers? He's an employee in independent contractor's clothing.

The unfortunate reality is that independent contractors are born not made. Said another way, you do not decide whether an able soul is an independent contractor or an employee, the IRS, Department of Labor and an assortment of statutes do.

Independent contractors who are really employees can cause trouble:

• They are entitled to unemployment benefits;
• They can make claims for overtime;
• They can sue you under Title VII;
• They can cause tax liability; and
• They can be very, very difficult to deal with.

One reason to care: In June 2009, Governor Ritter signed Colorado HB1310 into law, effective immediately. It imposes a fine of $5,000 per misclassified employee, which could increase to $25,000 for subsequent offense.

Don't get me wrong, independent contractors are great. Some of my best friends of independent contractors. But, if you choose to use them to accomplish your company's mission, you need to be sure that you do so correctly. Take the time to review Colorado's definition of what an "independent contractor" is, and confirm that you are following the rules. (E.g. http://www.coworkforce.com/dwc/whatis/employerwhatis.asp#independentcontractor). If you are, great. If you are not, review your structure and take the time to correct any errors.

This article is intended as a general discussion and information on the topic covered, and is not to be construed as rendering legal advice. If legal advice is needed, you should consult an attorney. This article may not be reprinted or reproduced in any manner without prior written permission of the author.

Laura J. Hazen is a Director at Ireland Stapleton Pryor & Pascoe, P.C. In her employment practice, Hazen provides day-to-day advice and coaching to public and private companies on various employment matters. She also has an active litigation practice where she concentrates on representing business in all aspects of complex business and employment disputes. You can contact her by email at lhazen@irelandstapleton.com or by phone at 303-623-2700.