Independent Contractor Agreements
Legally speaking, there is a big difference in Alabama between workers who are “employees” and those who are “independent contractors”. This distinction is critical when it comes to things such as determining eligibility for pensions and workers’ compensation benefits. Therefore, how your workers are classified can make a big difference to your business. But be warned, simply having a worker sign an independent contractor agreement does not make them an independent contractor. This article describes how courts in Alabama determine whether a worker is an employee or an independent contractor, and then discusses some pros and cons associated with employing independent contractors.
How to Tell if a Worker is an Employee or an Independent Contractor
According to Workerclassification.com, courts in Alabama determine whether a worker is an employee or an independent contractor based on a common law right to control test. This means that a worker should be legally classified as an independent contractor if he or she has the right to control the means and methods by which their work is performed. It is important to note that the worker does not actually need to exercise this right, they just have to be entitled to it.
Courts determine whether a worker has the right to control the means and manner in which they do their job on a case-by-case basis. Courts often consider a variety of different factors including the following:
- Amount of instruction that the company provides to the worker,
- Whether the worker is responsible for hiring, paying, and firing their assistants,
- Whether the employer dictates the worker’s schedule,
- If the employer provides the worker with tools and materials, and
- Whether the worker is paid based on the time that they work or per project.
Pros and Cons Associated With Employing an Independent Contractor
While there are a variety of pros and cons associated with employing independent contractors, a helpful article from AOL lists some of the most important, including the following.
The upsides associated with employing independent contractors often include:
- Tax Benefits: Employers must pay half of their employees’ Social Security and Medicare taxes, however, employers are not required to pay these taxes for their independent contractors.
- No Need to Provide Equipment and Supplies: Independent contractors generally provide their own equipment and supplies, thereby saving your business money.
- Provide Fewer Benefits: Employees generally receive many more employment benefits than independent contractors do. For example, employers generally do not provide health insurance, sick days, or pensions for independent contractors.
- Staffing Flexibility: Independent contractors can be employed for a specific amount of time, or for a specific project. This can be very helpful for businesses with fluctuating workloads.
- Reduced Legal Risk: Employees generally have more legal rights in the workplace than independent contractors do. While independent contractors certainly still have rights and are able to sue their employers, they have fewer rights than employees do and so employing them can help reduce your business’ risk of being sued.
The downsides associated with employing independent contractors often include:
- High Fees: Independent contractors are often highly skilled and in many instances you have to pay more for their services than you would for an employee to perform the same job.
- Intellectual Property: Independent contractors sometimes have a legal claim to the intellectual property that they create. However, this often depends on the terms of the independent contractor’s agreement.
- Less Control: Employers have more control over employees than independent contractors when it comes to determining how and when work is completed.
Need Legal Advice?
If your business is located in Alabama and you are interested in drafting binding employment and independent contractor agreements, contact the experienced Birmingham business attorneys at Cloud Willis & Ellis, LLC today.