According to the US Department of Labor, “misclassification of employees as …independent contractors, presents a serious problem for affected employees, employers, and to the entire economy. Misclassified employees are often denied access to critical benefits and protections – such as family and medical leave, overtime, minimum wage and unemployment insurance – to which they are entitled. Employee misclassification also generates substantial losses to the Treasury and the Social Security and Medicare funds, as well as to state unemployment insurance and workers compensation funds”.

Determining Factors
Laws may vary by state, but in New Hampshire, an individual is presumed to be an employee unless deemed an independent contractor under a seven-part analysis.[1] The burden of establishing all seven factors is on the employer. Primarily, the amount of control over the individual’s work functions is an essential factor. The factors to be considered are whether:

• The individual applied for a federal employer identification number or agreed in writing to the responsibilities of an employer;
• The individual has control and discretion over the way the work is performed;
• The individual has control over the work schedule;
• The individual controls the hiring of assistants and is responsible for supervising the assistants’ work;
• The individual holds himself or herself out to be a business, or is registered with the State as a business, and the individual has continuing or recurring liabilities or obligations relating to his or her business;
• The individual is responsible for the satisfactory completion of work and as such, may be held responsible contractually for the failure to complete the work; and
• The individual is not required to work exclusively for the employer.

Why does it matter?
Laws may vary by state, but in most cases you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax for employees. You do not generally have to for independent contractors.

In addition, employees must be covered by worker’s compensation insurance; independent contractors do not receive the same protection.

Penalties
Employers often misclassify employees as independent contractors out of ignorance of the law while others do so intentionally as a way to cut costs. Either way, they are putting themselves and their business at risk of steep penalties if they are found guilty of this misclassification.

They may be held liable for all unpaid employment taxes relating to that worker. In addition, if an employee is injured on the job, the employer may be liable for the full cost of the employee’s benefits and could be subject to other civil penalties.

If you’ve been injured on the job and think you may be missing out on benefits owed to you due to such a misclassified, it is prudent that you contact a New Hampshire attorney for assistance.

Employers are also wise to seek help in making this important distinction if they have any doubts. It is always better to play it safe than to find out after the fact.

Additional Resources

http://www.nhbr.com/January-25-2013/New-criteria-used-to-determine-independent-contractor-status/

http://www.dol.gov/whd/regs/compliance/whdfs13.htm
 [1] RSA 281-A:2.

Attorney Allison Ambrose is happy to help both employers and individuals to clarify the correct classification for workers.