Independent Contractor or Employee? Does it matter?
1/16/2012 1:32 PM
It matters to the Illinois Department of Employment Security.
Some businesses seem to run on independent contractors. And it often makes sense to hire independent contractors instead of adding staff for a one-time project or seasonal event: why take on a permanent employee when the workload only requires a short-term solution. But some employers label workers as independent contractors who perform functions that are core to the business and who work for the employer for extended – near permanent – periods of time. Because the worker is an independent contractor, the employer does not pay unemployment insurance premiums on that worker’s wages.
But the Illinois Department of Employment Security (IDES) does not allow businesses to avoid paying unemployment insurance premiums merely by classifying a person as an independent contractor. Instead, the IDES takes its own hard look at what the worker does and how he does it.
IDES definition of “Employment. "The IDES defines employment very broadly as “any service performed … by an individual for an employing unit.” This includes work done by an independent contractor.
IDES definition of Independent Contractor. Because the IDES assumes that workers meeting that broad definition are employees, the burden is on the business to demonstrate that the worker is actually an independent contractor. To do so, the business must prove three things:
1 - The worker is “free from control or direction over the performance of such services.”
2 – Either
i) the services are “outside the usual course of the business for which such service is performed,” or
ii) the services are “performed outside of all the places of business of the enterprise for which such service is performed;” and
3 – The worker “is engaged in an independently established trade, occupation, profession, or business.”
If the business can’t demonstrate each of these three requirements, the IDES will likely declare the worker to be an employee. This finding will result in an assessment for back amounts owed, interest, and could include penalties.
Note: Because employers are also required to withhold income taxes and pay Social Security and Medicare taxes for employees, misclassification can also raise problems with the IRS.
For more information about this and other business topics, please contact the author Brian D. Moore by phone at 630-355-5577 or by email email@example.com.
This article is intended to provide friends and clients with general information regarding the subject matter covered. This article is not, and does not contain, legal advice. This article may be considered attorney advertising.