What is the Difference Between Independent Contractors and Employees?

Whether an individual is an independent contractor or employee can have important consequences with respect to what laws apply, what taxes must be paid, and what benefits, if any, must be provided to the individual.  Under Minnesota law, the determination of whether an individual is an independent contractor or an employee is usually based on a multi-factor test.  In general, the factors that a court may consider are:

  1. Control of Method and Manner of Performance:  This factor is the most important.  It measures the degree of control which the purported employer exerts over the manner and method of performing the work contracted.  The more control there is, the more likely the person is an employee and not an independent contractor.
  2. Right to Discharge:  The right to discharge is indicative of an employment relationship, and it exists if the individual may be terminated with little notice, without cause, or for failure to follow specified rules or methods.  In contrast, there is no right to discharge if an independent worker produces an end result which measures up to contract specifications.
  3. Availability to Public:  If an individual makes services available to the general public on a continuing basis, independent contractor status is indicated.
  4. Compensation on Job Basis:  Independent contractor status is indicated by payment on a job basis rather than payment by the hour, week, or month.
  5. Realization of Profit or Loss:  Independent contractor status is indicated where an individual is in a position to realize a profit or suffer a loss as a result of his or her services.
  6. Termination:  The worker’s right to terminate the working relationship with the purported employer at will and without incurring liability for non-completion indicates employment.  Independent contractor status is indicated when the individual agrees to complete a specific job, is responsible for its satisfactory completion, and is liable for failure to complete the job.
  7. Substantial Investment:  A substantial investment by a person in facilities used in performing services for another indicates an independent contractor status.  The furnishing of all necessary facilities by the employer indicates the absence of an independent contractor status.
  8. Responsibility:  If an employing unit is responsible for the negligence, personal behavior, and work actions of an individual who has contact with customers or the general public while performing services, an employment relationship is indicated.
  9. Services Fundamental to Business:  Employment is indicated where the services provided are necessary to the fundamental business purpose for which the organization exists.

See Minn. R. §§ 5224.0330 and 5224.0340.

About Michael Miller

Michael is a Chambers-rated attorney in Briggs and Morgan's Employment, Benefits, and Labor group and is head of the firm’s Employment Law Counseling and Compliance practice group. He has 25 years experience counseling employers to prevent unwanted litigation and advises companies of ongoing changes in federal, state and local employment law. Michael advises employers in all areas of employment law including discipline and discharge, leaves of absence, wage and hour compliance, non-compete and confidentiality agreements, affirmative action plans, background checking, and drug/alcohol testing. For Michael's full bio, click here.

Posted on December 15, 2011, in Independent Contractors and tagged . Bookmark the permalink. Leave a comment.

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