Employees and Independent Contractors - What's the Difference?
Small business owners sometimes consult with a Delaware business attorney to discuss the pros and cons of hiring someone as an independent contractor rather than making that person your employee. As with anything, there are factors to consider that way in favor of and against each choice. Let’s suppose you make the decision to engage the services of an independent contractor. You may be surprised to learn that in the eyes of the IRS and the courts, the person you consider to be an independent contractor is actually your employee. And that kind of determination has consequences you may not have wanted.
Here in Delaware, I’ve handled cases where somebody negligently injures my client, and I sue that individual as well as the company he was working for. The reason for suing the company is that an employer is responsible for the negligence of an employee if he was acting within the scope of his employment at the time of the injury. That’s because of a well recognized doctrine called “respondeat superior,” or “vicarious liability.” In some of these cases, the company claims that the negligent worker is an independent contractor rather than an employee. This is important to figure out, because vicarious liability doesn’t apply to independent contractors.
So, if the worker is in fact an independent contractor, there’s no case against the company. On the other hand, if the worker is an employee, the company is liable for his acts of negligence.
It may seem like an easy matter to figure out, but as we’ll see below, it’s not always easy to make this distinction. One thing is clear - it doesn’t make a difference what you call the worker. The courts and the IRS will go beyond any contract that says somebody is or is not an independent contractor, and they will focus instead on the specific facts.
My next article will go into this in more detail, starting with the IRS's position. For now, consider the following quote from a Delaware court:
“It would be a hopeless task for any Court to lay down a rule whereby the standing of men laboring and contracting together could be definitely construed in all cases as employees or independent contractors. Each particular case must, out of necessity, depend on its own facts, and ordinarily no one characteristic of the relation is decisive. All of the characteristics must be considered. Consequently, in a majority of the cases the question becomes one of fact.”
