Clients often come to our firm because they are concerned about the risk in using independent contractors. Many of our clients are employers who have a regular core of employees but also use a variety of independent contractors to supplement their business needs.
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, we work with a client whose company does storm damage repair. This company has a primary group of employee roofers and siding installers. But, from time to time, this client has restoration jobs which call for roofers, plumbers, painters, masons, landscapers, etc. We consider this 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. Moreover, how an employer proves a worker is an independent contractor varies in Minnesota depending on the industry. For example, employers in the construction industry must register with the Minnesota Department of Labor and Industry AND prove nine very strict factors to show its worker is an independent contractor. However, employers in the trucking and messenger/courier industry operating a car, van, truck, tractor, or truck-tractor that is licensed and registered by a governmental motor vehicle agency must prove seven similar but modified factors under a completely different law. Yet other industries in Minnesota may be subject to a five factor test that has developed over the years through numerous court decisions. As you can see, it can become very confusing which law or laws apply and simply meeting the criteria of one may not be enough to prove a worker is a properly classified independent contractor.
Although there are indeed a variety of differing independent contractor "tests" - as referenced above by using common sense - we can make a checklist of what a company can do to start on the right path to proving its worker is an independent contractor in case the IRS, the United States Department of Labor, the Minnesota Department of Labor and Industry, or other governmental agencies or courts question a worker's independent contractor status. Let's use the example of a roofer to illustrate a checklist of what a company should collect on the roofer to greatly lower the risk in using him/her as an independent contractor.
First, set up an independent contractor file on the independent contractor roofer and put in such documents that show:
- The business name of the independent contractor roofer;
- The corporate name of independent contractor roofer (if the independent contractor is incorporated, put Certificates of Incorporation in his/her independent contractor file);
- A copy of an Assumed Name Certificate, if the roofer is not incorporated;
- Federal Employer Identification Number (FEIN), if available, whether the roofer is incorporated or not incorporated;
- Certificates of Insurance that bear the business name of the independent contractor roofer;
- Proof that the independent contractor roofer has properly registered with the Minnesota Department of Labor and Industry;
- Any ads proving the independent contractor roofer advertises in his/her business name;
- Business cards in the business name of the independent contractor roofer;
- Business letterhead in the business name of the independent contractor roofer;
- Invoices with the business name and business information about the independent contractor roofer at the top of the invoice;
- Any bids or negotiation notes that show the independent contractor roofer bids on a job or negotiates a job;
- Photographs of the truck of the independent contractor roofer 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 roofer's business in his/her business name;
- Promotional materials, price sheets, or a website; and
- Photos of other jobs the independent contractor roofer has done as an independent contractor roofer elsewhere.
Second, now that the checklist is covered and the independent contractor's file is well underway, confer with someone knowledgeable about the specific independent contractor tests in your industry to make sure any remaining requirements are satisfied so that the file can be completed. In this way you will be prepared for any potential audit or questions regarding the worker's status.
For assistance with audits, hearings, and reviewing/drafting independent contractor agreements (or for consultations on limiting your liability in the use of independent contractors), contact Wessels Sherman's Minneapolis Minnesota office: 952-746-1700 or email him at firstname.lastname@example.org.