The Common Law Employee Versus the Independent Contractor: a Legal Primer
| Publication year | 2010 |
| Pages | 47 |
| Citation | Vol. 39 No. 2 Pg. 47 |
2010, February, Pg. 47. The Common Law Employee Versus the Independent Contractor: A Legal Primer
February 2010
Vol. 39, No. 2 [Page 47]
Law Practice Management (LPM) articles provide information to assist lawyers in managing their law practices. If you would like to discuss a topic for an LPM article, contact CBA LPM Director Reba Nance at reban@cobar.org. For writing guidelines, contact The Colorado Lawyer Managing Editor Leona Martinez at leonamartinez@cobar.org.
About the Author
Diane Vaksdal Smith is a shareholder with Burg Simpson, in Englewood, where she focuses on employment and appellate law. She is a contributing author of The Practitioner's Guide to Colorado Employment Law and lectures regularly to lawyers and laypersons-(303) 792-5595, dsmith@burgsimpson.com.
Many employers are turning away from the traditional workforce model, filling their employment needs through an "alternative" or "blended" workforce rather than with permanent, full-time employees. A blended workforce comprises a combination of permanent full-time and part-time employees, temporary employees, and independent contractors.(fn1) In such a model, the business may use temporary, on-call, or contract workers.(fn2) Businesses also may outsource piecework or a business unit's work.
When work is assigned to an individual who holds himself or herself out as an independent contractor, issues regarding taxation of compensation, unemployment, and common law liability can arise, particularly where the individual has not adopted the formalities of a legal entity such as a corporation or limited liability company. In such situations, the business must determine whether the individual will be treated as an employee or as an independent contractor. The applicable laws for making this determination vary depending on why the business is trying to make the determination. For example, if the business is trying to determine whether to withhold or pay taxes on compensation, it must look to the definitions set forth by the Internal Revenue Service (IRS)(fn3) for direction. If the business is trying to determine the appropriate payment of wages or benefits, it also may need to look to the Fair Labor Standards Act (FLSA)(fn4) for guidance. Colorado common law addresses liability in tort, whether for a private or a public employer,(fn5) as well as whether the individual is entitled to unemployment compensation when the working relationship ends.(fn6)
Any business considering the use of a nontraditional workforce needs to be proactive to determine what laws apply. This article presents three sources Colorado businesses should consult when trying to distinguish an employee from an independent contractor: the Internal Revenue Code, the FLSA, and Colorado common law. It discusses how each source determines employee classification, as well as what happens when a business misclassifies the worker under the applicable laws.
Tax Code Definitions
For purposes of employer liability for withholding and taxation of wages, the business should look to the definitions applied by the IRS. The IRS recognizes four categories of workers: (1) independent contractors; (2) common law employees; (3) statutory employees; and (4) statutory nonemployees.(fn7) This article addresses the independent contractor and the common law employee.
According to the IRS, a worker is an independent contractor if the business for which the services are performed has the right to control or direct only the result of the work and not the means and methods of accomplishing the...
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