How do you avoid the Independent Contractor Trap?

It is the type of thorny issue that simmers beneath the surface and then boils with sometimes extreme consequences . . . the Independent Contractor Trap

Just like Admiral Acbar realized and then boldly proclaimed in the Star Wars series during Return of the Jedi, It’s a trap, a business can find itself trapped and unlike Admiral Acbar, not ultimately succeed in destroying the Death Star and defeating the Empire . . .

Most businesses use independent contractors either on a regular basis or from time to time. Operating as if a person or entity is an independent contractor; then discovering the state employment security commission, the state department of Labor or the Internal Revenue Service considers the person an employee can be disastrous. Past due worker’s compensation insurance premiums, past-due taxes, and additional liability, can be substantial. Below is some practical information to assist you in maintaining solid independent contractor relationships:

 

  1. Use written agreements to document the relationship. The written agreement can be a powerful source of documentation of the independent nature of the relationship. As a result, it’s critical the written agreement is drafted to operate as proof of an independent contractor relationship.
  2. Use an Affidavit of Independent Contractor Status. This document is often considered by insurance companies to determine whether to require worker’s compensation insurance.
  3. File the appropriate tax documentation (federal and state).
  4. Be certain that it is the independent contractor that determines the manner and means to accomplish the task. You can retain control of the outcome or final product
  5. Require the independent contractor to provide you with invoices prior to payment.

Posted by Shawn Roberts

On this blog, I write about and try to answer practical Oklahoma legal questions. My focus and most experience is in estate planning and business issues including Oklahoma non-compete law. I make a living as an attorney in the law firm I founded, Shawn J. Roberts, P.C. in Oklahoma City. I live in Edmond with my wife Amy and my two children, Sam (19) and David (11). We live precisely in the path of where the "wind comes sweeping down the plains."

7 comments

[…] Know who your employees are or are not. One of the easiest ways for a business to create a mountain of liability is to treat individuals who are actually employees as independent contractors. That means failing to withhold and do payroll properly and to secure worker’s compensation insurance. If you have any doubt about whether an individual is an employee or independent contract, talk to an attorney. You do not want to get caught in the Independent Contractor Trap. […]

[…] Know who your employees are or are not. One of the easiest ways for a business to create a mountain of liability is to treat individuals who are actually employees as independent contractors. That means failing to withhold and do payroll properly and to secure worker’s compensation insurance. If you have any doubt about whether an individual is an employee or independent contract, talk to an attorney. You do not want to get caught in the Independent Contractor Trap. […]

[…] Know who your employees are or are not. One of the easiest ways for a business to create a mountain of liability is to treat individuals who are actually employees as independent contractors. That means failing to withhold and do payroll properly and to secure worker’s compensation insurance.  If you have any doubt about whether an individual is an employee or independent contract, talk to an attorney.  You do not want to get caught in the Independent Contractor Trap. […]

Your information is helpful. We almost hired one this past year and wish we would have known then what you have posted. Good information.

Shawn J. Roberts

Thank you for the comment!

Ryan Hukill

Great information, Shawn. Got me thinking about a few things.

Shawn J. Roberts

Thank you Ryan, I appreciate your comment!