6 factors to consider to ensure that your subcontractors are NOT employees
Whatever the reason, contractors need to be aware that sometimes subcontractors can be deemed employees. This could lead to substantial liability on part of the contractor, including indemnifying their work, tax penalties, being forced to cover any injuries that may occur through the company’s workers’ compensation policy, and many other issues.
Below are six factors used by various government agencies to determine whether a subcontractor is an independent contractor and not an employee.
- The permanency of the relationship between the parties.
- The degree of skill required for the rendering of the services.
- The extent of the worker's investment in equipment or materials for the task.
- The worker's opportunity for profit or loss, depending upon his skill.
- The degree of the alleged employer's right to control the manner in which the work is performed.
- Whether the service rendered is an integral part of the alleged employer's business.
There are steps that can be taken to ensure compliance with the applicable laws and regulations. For instance, you could require your subcontractors to provide you with their advertisements, their business information, and workers’ compensation insurance. You could enter into a formal written contract which allows the subcontractor to work for other contractors or on their own jobs, among other things. In addition, your subcontractor agreement can include provisions that will assist contractors in mitigating risk, such as an arbitration clause, and a class waiver agreement.
Given the extent of the potential liability, if your business uses subcontract labor you should have your attorney analyze your relationships to ensure compliance and prevent unwanted liability.