Blog

When Does a Temp or Contractor Become an Employee?


Many companies contract out certain parts of their work functions to either temporary staff or independent contractors. But, if someone is working for your company full time for an extended period, the question arises of when that person ought to be considered and designated as a permanent employee.The issue is important because the longer someone is working for you, the more the line blurs between contractor and employee.

Getting it right can save you financial and legal headaches if a government agency questions the relationship or if the worker sues you for labor infractions, employee benefits or workers’ compensation benefits if they are injured while working for you. There are a number of laws and regulations that you can run afoul of for not classifying a worker or contractor properly, each of which can cost you.

The employment law firm of Foley & Lardner wrote in a recent circular to its clients:

“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 month the contracting relationship is extended, the worker looks 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.”

LAWS, REGULATIONS GOVERNING WORKER MISCLASSIFICATION

  • Fair Labor Standards Act
  • Workers’ comp laws
  • Unemployment regulations (premium payment obligations required for employees)
  • IRS rules
  • The Employment Retirement Income Security Act.

A WORKER MIGHT BE AN INDEPENDENT CONTRACTOR IF:

  • They have a federal tax ID
  • They have a capital investment in their own business
  • They hold themselves out to other employers as being available to perform work
  • They control the manner and method of their work
  • They are not doing the same work, in the same way, as other employees

VMA Sponsors:

VMA Partners:

Learn how we support your business