By: Santiago J. Padilla, Esq.
As an employment attorney, I am often asked whether an employee can be made an independent contractor in order to avoid employment-based issues that arise because of the employer-employee relationship. Specifically, some employers seek to avoid the payment of employment taxes that must be paid for the benefit of employees. Others attempt to avoid the liability that may exist under employment laws such as the Fair Labor Standards Act ("FLSA"), which requires the payment of a minimum wage and overtime pay for all hours worked over 40 per week. Still others seek to shield themselves from the civil liability that may attach by virtue of having employees, such as tort liability. Employers use various strategies to implement this legal fiction. Some use payroll companies, while others engage staffing companies so that these companies become the "technical" employer of their employees, at least on paper. Others attempt to have their employees sign independent contractor agreements. However, all of these strategies generally fail to make an employee an independent contractor and exposes the employer to liability.
Under Florida law, the fact that an individual signed an agreement stating that he or she is an independent contractor or received a Form 1099-Misc. is not determinative regarding the issue of whether that individual is an independent contractor. The courts have held time and time again that an employee cannot simply waive his or her status as an employee by signing a document stating the he or she is an independent contractor. Such a contract is not controlling although it may be evidence. Also, labeling an individual an employee of a staffing or payroll company does not work either.
In addition, the Internal Revenue Service specifically states as follows regarding the issuance of Forms 1099:
"You cannot designate a worker, including yourself, as an employee or independent contractor solely by the issuance of Form W-2 or Form 1099-MISC. It does not matter whether the person works full time or part time. You use Form 1099-MISC, Miscellaneous Income, to report payments to others who are not your employees. You use Form W-2 to report wages, car allowance, and other compensation for employees."
See Internal Revenue Service Website (emphasis added).
Florida courts have held that whether an employer-employee relationship exists is based on the test of "economic reality" and not by applying "technical concepts." Each case must be examined carefully. There is no single factor that determines whether a person is an independent contractor or an employee. The totality of the facts and circumstances of each case must be taken into consideration.
For example, factors that are significant are (1) whether the relationship is permanent, (2) whether the work is performed on the employer's premises, (3) whether the employer has the ability to control how the work is performed, (4) whether the work is a critical aspect of the business, (5) whether the alleged contractor invested money in equipment and facilities, and (6) whether the alleged contractor also renders the same services to other companies.
It does not matter where the payment to the individual comes from. Many companies nowadays use payroll companies or staffing companies. However, Florida courts have repeated that the important point is the substance of the relationship, not the form of the relationship as may be reflected in documents (e.g., independent contractor agreements). Thus, even if the individual performing the work has signed an agreement stating that he or she is an independent contractor, courts may decide that the individual is an employee based on the factors indicated above.
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If you have any questions regarding classifying employees as independent contractors or any other employment law matter, please contact Santiago J. Padilla at 1-800-483-71971-800-483-7197 FREE FREE FREE or via email at [email protected]