Merely having a worker sign an agreement that he or she is an independent contractor will not make him or her one in the eyes of the law. Since the penalties for misclassification can be severe, you must make sure that everyone who deals with independent contractors in your company understands that they can’t be supervised or otherwise controlled in the same way as employees. They are independent business people who must be treated as such.
What is a contract worker?
While temporary employees are hired through a staffing agency, contract workers are hired directly through a particular organization or business, usually to carry out a specific job, requiring particular skills. While ‘employees’ usually work for a set amount of time for hourly, weekly or monthly wages, contract workers generally work until their specific job is completed. The job of a contract worker will usually be carried out based on the worker’s own knowledge, under their own available working hours, normally supplying all of their own material. Being self-employed they will deal with their own tax issues, not paying income tax. Contract workers may also hire other workers to help them to complete their work and can carry out multiple jobs for various employers at the same time. In most countries, there are times when contract workers are not correctly identified. Major contractor markets such as Australia, US, Canada and UK have their own tests for correctly identifying an independent contractor.
The Importance of Correct Identification
Companies have discovered that by hiring independent contractors rather than ‘employees’, they can save on workers’ compensation insurance as well as state and federal taxes…. However, you risk considerable tax fines, other penalties, and a serious gap in insurance coverage if your independent contractors are later determined to actually fit an ‘employee’ definition. There are important points which should be researched to determine a worker’s’ correct title. If the title of ‘contract worker’, has not been verified and a work-related accident occurs, the employer may be held responsible for any penalties.
Six subjects investigated by the in order to identify a contract worker are: Control: A contract worker has their own knowledge on the work required, making their own decisions on how jobs are carried out. They can also choose the amount of pay needed to take on a job, work for other employers at the same time and choose their own working hours. Tools and equipment: Contract workers usually supply most of the tools and equipment required for the job, they are also in charge of their repair and maintenance. Subcontracting work or hiring assistants: Contract workers can hire other workers or assistants to help them to complete the job. Financial risk: Contract workers tend to be under a greater financial threat. They are usually responsible for any operating expenses and will be financially liable if the agreed job is not carried out. Responsible for investment and management: Contract Workers are responsible for making their own business decisions which may affect profits or losses, as they are not members of any staffing agency. Worker’s opportunity for profit or loss: Being in charge of designing the work that is needed to complete the job, contract workers are faced with the possibility of either a profit or a loss to occur. There are now more effective ways of being sure of this title. The Australian Taxation Office website has created their ‘Employee or Contractor Decision Tool’ online, helping a worker to clearly determine whether or not they will be considered as an employee or contract worker. 
