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Common Sense Ideas for Employers in Proving Independent Contractor Status

January 2014

By: Nancy E. Joerg, Esq.

Clients often come to meet with me because they are deeply worried about the risk in using independent contractors. Many of my clients are employers who have a regular core of employees but also use a variety of independent contractors.

The reason many companies use independent contractors in addition to employees is because the company may have only occasional need for a range of independent contractors. For example, I work with a client whose company does storm damage repair. This company has a core group of employee roofers and siding installers. But, from time to time, this client has restoration jobs which call for electricians, plumbers, painters, masons, landscapers, etc.

I consider this use of independent contractors to be an important (and wholly legitimate!) use of independent contractors. No sensible person (or auditor) could expect a company to classify these rarely used professionals as employees----or could they?!?

The brutal truth is that ANY worker that a company pays IS CONSIDERED BY LAW ITS EMPLOYEE---unless the company can PROVE that the worker is an independent contractor.

Let's use the example of an independent contractor electrician. By using common sense, we can make a checklist of what a company can do to prove the independent contractor status of the electrician (in case the IRS, the Department of Labor, the Illinois Department of Employment Security, or other governmental agencies or courts question the independent contractor status of the electrician in our example). Although there are indeed a variety of differing independent contractor "tests", common sense can suggest a good checklist of what the company should collect on the electrician, to greatly lower the risk in using him/her as an independent contractor.

Below is a suggested checklist of documents to keep in an independent contractor file on our electrician. Remember, we are trying to prove that the independent contractor electrician is not our employee. Set up an independent contractor file on the independent contractor electrician. Put in such documents that show:

  • The business name of the independent contractor electrician;
  • The corporate name of independent contractor electrician (if the independent contractor is incorporated, put Certificates of Incorporation in his/her independent contractor file);
  • If the electrician is not incorporated, but has an Assumed Name Certificate, put a copy of the Assumed Name Certificate in the independent contractor's file;
  • If incorporated, or not incorporated, the independent contractor electrician can still have a Federal Employer Identification Number (FEIN), which should be put in his/her file;
  • Certificates of Insurance that bear the business name of the independent contractor electrician;
  • If the independent contractor electrician advertises in his/her business name, you want a copy of that ad in the file;
  • Business cards in the business name of the independent contractor electrician;
  • Business letterhead in the business name of the independent contractor electrician;
  • Invoices with the business name and business information about the independent contractor electrician at the top of the invoice;
  • Any bids or negotiation notes that show the independent contractor electrician bids on a job or negotiates a job;
  • Photographs of the truck of the independent contractor electrician with his/her business name on the truck;
  • A copy of the signed independent contractor agreement, which should be signed with the independent contractor's business name;
  • Any Yellow Page listings or business listings of the independent contractor electrician's business in his/her business name;
  • Promotional materials, price sheets, or a website; and
  • Photos of other jobs the independent contractor electrician has done as an independent contractor electrician elsewhere.

For assistance with IDES audits, hearings, and independent contractor agreements (or for consultations on limiting your liability in the use of independent contractors), contact Attorney Nancy E. Joerg, who enjoys a nationwide reputation in working with companies who use Independent Contractors of all types. Nancy Joerg can be reached at Wessels Sherman's St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.