Can You Convert Your Employees into Independent Contractors?

If you are a business owner, you are probably aware of different types of workers. You may have heard about independent contractors who fulfill a similar role as employees, but there are fewer requirements set on the business owner. This raises the question of whether you can transform your employees into independent contractors to save money. Learn the answer with this guide.

Turning Employees into Independent Contractors

There are a few very specific instances where you can turn your employees into independent contractors, but in the vast majority of situations, this is completely impossible and illegal. To be considered an independent contractor, an individual needs to work for himself or herself so the employee/employer relationship cannot exist.

If you employ an independent contractor, you will have no control over how the job is done. This means you cannot have a fixed place of work for the independent contractor or set how many hours he or she must work. If you changed an employee into an independent contractor, essentially everything about your relationship with that individual would have to change. The only way you could do this is if an employee launched his or her own business. For instance, if you had an employee who created bricks and laid them into walls, that employee could potentially start his or her own brick business. That employee would be responsible for paying for the materials that create the bricks, could potentially serve other clients, and could change his or her own service rate. If that individual continued to create and lay bricks for you, he or she would be an independent contractor. 

The Definition of Independent Contractors

The definitions for who is and is not an independent contractor are often varied and indistinct. The categorization is handled both by the Internal Revenue Service and the US Department of Labor, which complicates things. The general rule according to the IRS is that the client of an independent contractor has control over the finished product, but has no control over the way it is done. The independent contractor would decide the methods, hours, and rates themselves. The distinction is further defined as follows:

  • There is no employer/employee relationship.
  • The services of an independent contractor are not controlled by an employer.
  • Independent contractors have unique taxation requirements.

If you really do have an independent contractor, then you are not obligated to provide healthcare benefits or withhold taxes from the paychecks; however, you also have no control over how many hours the worker works. If you have further questions about hiring employees or contractors for your company, speak with a skilled business lawyer, such as a business lawyer in Rockville, MD, to go over the business laws that you will need to follow when hiring someone new. 

Thanks to the Law Office of Daniel J. Wright for their insight into independent contractors versus employees.

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