If you're in the business of hiring employees for your company, you should be aware of certain legal issues around the status of that employee. In this lesson, we're going to delve into some legal issues around those types of employment questions. First we'll talk about the distinction between an employee and an independent contractor. Then we'll talk about some criteria that's used to determine whether a worker is an employee or an independent contractor. We'll explore some benefits of that classification to the worker, the impact that classification may have on you and your company as an employer. We'll spend some time talking about temporary workers as opposed to employees who are independent contractors, and then we'll talk about best practices. Employee versus independent contractor. The body of law that around employment issues, oftentimes depends on the status of a worker's classification. How do you classify a worker? Is this worker an employee? Is he or she an independent contractor? Is he or she just a temporary worker? Now, for the most part, employment law results in positions on an employer based on an employee status. Oftentimes an independent contractor or a temporary worker may have different rules applied to them than an employee. In this lesson, we're going to try to work through an analysis to help you understand the differences between those classifications. In terms of an employee, an employee typically has a longer-term commitment to the employer. That employee their job is essentially furthering the employers purpose. They're not offering services to the public or to other third parties, their economic viability is largely tied up with the employer. In fact, they are economically dependent upon the employer. An employee oftentimes is also supervised and controlled by the employer. Conversely, an independent contractor is typically someone who maintains control over their own work. They offer services to the public, and this particular employer is one client of the independent contractor. Those are some high level distinctions between an employee and an independent contractor. Now, here's some criteria that courts may use if this ever comes up in a dispute or some legal case where the classification of the worker becomes relevant. Here's some criteria that a court may use to help determine the status of a worker. First is the control and supervision. Is the employer controlling or supervising the work of the worker? Service integration with the employer's core business. Is the particular job that this worker is doing, is this the core business of the employer? If not, this may be an independent contractor who's coming in to do a very discrete job. If it is, then this may be an employee. Could this employee whole purpose is to further the business objectives of the employer? The permanent or duration of the working relationship is also a very important criteria. If it's like a permanent or an ending relationship, then that leans to being an employee, this is someone whose economic dependence is tied up with the employer. If it's more of a temporary thing, where it's a very finite period of time that a project is being worked on, then that suggests that this may be an independent contractor, someone who's coming in to work on a very specific job, specific skill set that's being offered to achieve a narrow objective for the employer. Is vacation or leave time given to the worker? If so, this is probably an employee, this is an added benefit that the employer is given to a more longer-term relationship with the worker. Typically, an independent contractor won't be given a vacation or leave time, because that independent contractor is not afforded those types of extra benefits. Then finally, the intention of the parties. The worker and the hiring party, the employer, what did they intend when they engaged in this working relationship? Did they intend for this to be an employee-employer relationship, or did they intend for this to be kind of an independent contract, temporary type of assignment relationship? This criteria will help a court in some type of employment dispute decide what the status of a worker is. Now what's the benefit to a worker, and being an employee, or being an independent contractor? With respect to being an employee, the employee status gives a worker certain legal protections and extra benefits from the employer. For example, these benefits include health insurance or retirement plan. The legal protections include things like the wage and hour laws; you get paid overtime when you're working more than was legally prescribed, you get workers compensation benefits if there's an injury on the job. Having that employee status opens up those types of protections and benefits to a worker. Now conversely, if you're an independent contractor that allows you some independence, you're not tied down by the employer's supervision and control. It also allows you to have quarterly self-employment taxes over having an employer withhold taxes from your payroll. Oftentimes this is attractive thing for independent contractors. What about the impact on you as an employer? Then they employee status triggers employment law statutes, so worker's compensation, employment discrimination laws, all of these come into play if this worker is deemed an employee. Also, intellectual property is a big thing. This is the property that you may have in your trademarks or your patents or your trade secrets. With respect to patents in particular, oftentimes when you hire a worker, you want to make sure that any patents were inventions that are derived from that employment relationship is assigned to your company, so that your company owns that intellectual property. Now, in an employee situation, typically as part of being an employee, any inventions that are derived under scope of employment is automatically assigned to the company. That's part of an invention assignment agreement that as a business owner, you want to have your employee side when they join your company. If you're dealing with an independent contractor, issues around intellectual property can be a bit dicey. For example, an independent contractor doesn't have an obligation to assign its intellectual property rights over to the company, because they are separate entity. They're an independent contractor. An independent contractor who may be working for your company, if patents or other inventions are derived during that work, those inventions belong to the independent contractor unless there's a separate agreement that assigns inventions and intellectual property to your company during the scope of that independent contractor relationship. To the extent that you are going to hire someone as an independent contractor, you definitely want to make sure you have a separate agreement in place that assigns intellectual property that is derived during that relationship to your company. Now, let's talk a bit about temporary workers as separate and apart from independent contractors or employees. Temporary workers are usually hired by a temporary staffing agency, and they may send a temporary worker to your company to work for on particular projects or to work for a finite period of time. This gets a bit dicey because, although the temporary staffing agency is really the employer, the other entity does hiring the temporary worker. That worker at your facilities is being supervised and controlled by you as an employer. Depending on the circumstances, this type of relationship could lead to a finding that you as an employer you're either a sole employer of this temporary worker or at some circumstances, a joint employer of the temporary worker. As a result, if you are a sole or a joint employer, that all the body of law around employment issues will apply to you. This temporary worker can avail him or herself of worker's compensation statutes, discrimination laws, and other employment related laws that afford benefits to employees. Summary and best practices. The status of the relationship between you and workers who are working on your company's behalf should be very clear. If you're engaging with an independent contractor, you need to have an independent contractor agreement in place that really spells out the intention of the parties for this relationship to be an independent contractor relationship. Now, by having an independent contractor relationship, then that establishes the fact that this is an economically viable company. You want to make sure that you make it clear that this independent contractor is offering services to others in the public, not just your business so as to separate that individual worker and the individual worker's company from your company. Then for the most part this may shield your business from a large body of the employment law issues that come into play when you have an employee. You also want to establish the independent economic viability of your contract or a worker. Have like your independent contractor, business con or stationary, you want to have a file that shows that this independent contractor essentially has their own business and their services are being offered to your company on a very discrete and finite basis. If you're hiring temporary workers from a temp agency, one of the things that you want to think about doing is having an indemnification agreement in place with the temp agency. Since the temp agency is really the employer of this temporary worker, if an issue happens with respect to that temporary worker while working on your facilities, you want the temp agency to be responsible for them. You have an indemnification agreement in place which basically says, "If a plaintiff comes after your company with respect to something that's been done by the temporary worker, then that temporary agency will step into your place and they will defend that lawsuit on your behalf." That there are no guarantees around this. There is no guarantees on how a court would decide the status of a worker. But if you take these steps, you can help clarify the classification of your worker so that you increase the chances of having some predictability on how court may decide the classification.
