Legal Implications of Contractors vs. Employees
Many construction sites utilize a combination of full-time employees and independent contractors to complete a project. While independent contractors and employees may work together, each type of work status carries its own implications that could impact a construction company’s legal responsibilities and liabilities. In this editorial, a Central FL construction lawyer will give you an overview of the potential legal implications of having independent contractors on your jobsite.
Who is an Employee?
According to the Internal Revenue Service (IRS), a worker is considered an employee if their company controls “what will be done and how it will be done.” As an employer, you are more responsible for employees than you are for independent contractors. Some employers may be tempted to misclassify employees as independent contractors to avoid the extra cost and liability; however, it is extremely important that you treat employees as employees and independent contractors as business owners. If a company fails to do so, the legal ramifications can be serious.
Employers must provide safe workplaces, pay state and federal payroll taxes, comply with federal workplace guidelines (including minimum wage laws), and offer health insurance for full-time employees. Depending on the state your business is in, there are other wage and hours laws in place that impact employees. For instance, employers in Florida are not required to withhold state income taxes for employees because there is not a state income tax. If you have questions about your responsibilities to employees on your jobsite, schedule a consultation with Hillsborough county construction lawyers to make sure that your company is compliant.
Who is a Contractor?
An independent contractor is a business owner whether or not they take the steps to become an LLC or an incorporated business with a separate company name. In the construction industry, independent contractors typically offer a specific type of specialized service, such as plumbing, HVAC, or roofing. Independent contractors often perform services for multiple clients and may only be on the jobsite for a specific part of the project or time.
Although there are different methods for classifying independent contractors, in general, independent contractors:
- Bring their own tools to jobsites
- Maintain control of their own schedules
- Do not require training for completing a project
- Can turn down certain projects or assignments
- Work with more than one client at a time
- Submit invoices and do not receive payroll
- Are not eligible for employee benefits
Independent contractors are responsible for their own training, whereas a business trains its own employees. This applies to safety training as well. When it comes to liability for accidents on construction sites, employers may need to provide evidence that their company provided sufficient safety training and equipment to employees. Generally, independent contractors are responsible for themselves and must have their own personal safety equipment to use on jobsites; however, to ensure the safety of your jobsite, employers need to monitor the safety practices of everyone on their jobsite, including independent contractors.
The way you pay contractors and employees is likely very different. With independent contractors, they will be invoiced for payment for agreed upon services. You will need to pay the independent contractor by cash, check, wire transfer, PayPal, credit card, or some other system the contractor has in place. The independent contractor is responsible for their own taxes. For non-payment, the independent contractor could place the invoice into collections or pursue business-to-business legal action.
With employees, most businesses use a payroll service to pay employees via check, direct deposit, or payroll card. State and federal taxes are withheld and submitted by the employer on behalf of the employee. If employees do not receive a timely payment, Florida laws would apply.
End of Year Tax Forms
At the end of the year, employers must send W-2 tax forms to employees and the IRS. These forms document how much money the employee earned, the taxes withheld, and other information related to employee compensation and benefits. Many construction businesses utilize a commercially available payroll processing system that is able to generate W-2s for the employees within their company.
Independent contractors who earn more than $600 should be issued a 1099-MISC for the amount that the company paid them for services during the year. However, this can vary based on the independent contractor and how they file taxes for their own company. If you have questions about which contractors need 1099-MISC forms, consult with our Central FL contractor lawyers for guidance.
Independent Contractor Misclassification
Misclassifying an employee as an independent contractor could have serious ramifications for your business:
- Paying additional federal and state taxes for improperly classified contractors
- Losing tax-exempt status for benefit plans
- Lawsuits for employee benefit obligations
- Workers compensation penalties
- Reemployment assistance penalties and fines
- Potential liability, including a wage and hour claim
As long as you properly classify workers, you can utilize both independent contractors and employees on every construction jobsite. Consult a Hillsborough County construction lawyer to draft or review your employee and independent contractor hiring documents. Having unclear, misleading, or ambiguous contracts could create liability, so it’s imperative that you have someone who is knowledgeable about the intricacies of employment law within the construction industry take a look.
If you would like to speak with a Central FL construction lawyer, please contact us today.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.