No B.S.

  • When in doubt, classify as an employee!
  • Pay independent contractors as legal business entities rather than as individuals.
  • Make sure that independent contractors are not performing the same work as regular employees.

Worker issues are one of the biggest areas of concern for many roofing and solar companies. One of the first hurdles that must be overcome is to ensure that you are properly classifying workers as employees versus independent contractors.  In our experience, there’s a lot of confusion about when a worker is an employee versus a contractor, and unfortunately, just calling someone a W-2 employee or a 1099 contractor doesn’t make them so.

We understand that allure of utilizing 1099 contractors, especially in light of recent changes to paid sick leave requirements in many states, including Colorado.  Beginning in 2021, employers with 16+ employees must provide paid sick leave, and in 2022, all employers, regardless of size, must provide paid sick leave.

Unfortunately, there can be severe risks and repercussions if you misclassify a worker – either intentionally or unintentionally – including fines/penalties, back-taxes, litigation, workers’ comp claims, back-coverage for retirement and insurance plans, and in some circumstances, the owners of the business may be held personally liable.

To make sure that you don’t find yourself on the wrong side of an investigation or audit, let’s start with some definitions:

  • An employee is generally defined as a person hired for a regular, continuous period to perform work for an employer who maintains control over both the service details and the final product.
  • An independent contractor generally refers to a worker who performs services for others, usually under contract, while at the same time retaining economic independence and complete control over both the method by which the work is performed and the final product.

Ultimately, the difference between employees and independent contractors boils down to control. In exchange for a steady wage or salary, employees are generally expected to give up a certain degree of control over their financial and work life. Their schedule is usually set by the company, they usually work on-premises, and the work they do is crucial to the functioning of the business.  Independent contractors, however, are exactly that: independent. They’re paid hourly or per project, they’re free to set their own schedule, and their work is often not core to the business they’re performing work for.

You’ve probably heard of the different tests and factors that are used to classify workers. While those tests and checklists are supposed to be helpful, sometimes they can be more confusing than anything. The truth is, there’s not a bright-line distinction, and every circumstance needs to be carefully evaluated. What may be classified as an independent contractor in one situation or location might be classified as an employee in another.

For example, for an individual to be considered an independent contractor in Colorado, a company needs to have a written contract with the individual that establishes that:

  • The company does not require the individual to work exclusively for the company for whom services are performed;
  • The company does not pay a salary or hourly rate, but rather a fixed or contract rate;
  • The company does not establish a quality standard for the individual; except that such person can provide plans and specifications regarding the work but cannot oversee the actual work or instruct the individual as to how the work will be performed;
  • The company does not provide anything more than minimal training for the individual;
  • The company cannot terminate the work during the contract period unless the individual violates the terms of the contract or fails to produce a result that meets the specifications of the contract;
  • The company does not provide tools or benefits to the individual; except that materials and equipment may be supplied;
  • The company does not dictate the time of performance; except that a completion schedule and a range of mutually agreeable work hours may be established;
  • The company does not pay the individual personally, but rather makes checks payable to the trade or business name of the individual; and
  • The company does not combine its business operations in any way with the individual’s business but instead maintains such operations as separate and distinct.

If you have any question about whether your worker is (or you are) an independent contractor or an employee, make sure you consult with an attorney and/or tax professional to make sure you get it right. Below are a few things you can do to help make sure you don’t find yourself in a misclassification situation:

  • Be consistent! Centralize worker classification decisions.
  • Perform regular audits.
  • Classify workers performing the same/similar work the same.
  • Look to industry practice.
  • Ensure that a written Independent Contractor Agreement is in place.
  • Pay independent contractors as legal business entities rather than as individuals.
  • Utilize temporary help agencies.
  • Make sure that independent contractors are not performing the same work as regular employees.
  • File 1099 for any independent contractor you pay $600 or more in any given year.
  • WHEN IN DOUBT, CLASSIFY AS AN EMPLOYEE!

 

Their Pitch for You

Gilbertson Law Office has 15+ years of experience helping construction professionals protect themselves from legal risks and exposure. They work with small businesses via flat fee projects and ongoing subscription legal services so you can get quality legal services while controlling your legal costs.  Learn more about Gilbertson Law Office here: www.gilbertsonlawoffice.com

Mention this article for a free review of your independent contractor agreement to make sure you’re protected!

Bio:

Christina Gilbertson uses her 15+ years of experience as a trial attorney defending construction professionals to help them avoid claims and stay out of the courtroom.  By partnering with Gilbertson Law Office, you can rest assured that your business is legally protected and ready for whatever comes your way. 

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