Are My Workers Employees or Independent Contractors?

By Lane V. Erickson, Idaho Business Attorney

We understand that our job as the premier Idaho business law firm is to be experts at business law and provide support and help to our business clients. Our clients are business owners. Their job is to focus on their business and do what they can to make it successful. As business owners, our clients rely on us to give them sound legal advice and they help them when it comes to structuring their business in a way that helps them the most.

One of the big decisions that needs to be made in a business is whether the people who work for the business are employees or independent contractors. This decision determines whether the employer is required to do several additional things including withholding state and federal income taxes, providing unemployment benefits and workers compensation benefits through statutorily required insurance, and when and whether the relationship can end.

For more than 75 years our premier team of Idaho business lawyers have provided clients sound legal advice in creating their business and in its operation. Our goal is to guide our clients through all legal requirements so they can avoid costly and time consuming legal problems. The talented and skilled lawyers on our business team include partners Lane Erickson and TJ Budge, and attorneys Nate Palmer and Dave Bagley. With decades of experience our team of attorneys have the knowledge and skill necessary to help business owners with all of their business needs.

When it comes to determining whether your workers are employees or independent contractors, Idaho has a long line of legal cases that help. Below are the four main criteria that Idaho courts look to in determining whether a person is an employee or not. Keep in mind, that it really doesn't matter what you call the person, and it really doesn't matter what you believe they are, what really matters is how they are actually treated through the course and conduct of your relationship with them as part of your business practices.

The first issue and probably the most important one is to determine whether you can terminate your worker or not. A person who is a true employee usually works “at will” under Idaho law. This means that they are free to quit anytime for any reason with or without notice. It also means that the employer can terminate them at any time for any reason with or without notice. This sounds simple enough but oftentimes it really isn't.

The real issue usually comes down to whether there is a written contract or not. The problem with this criteria is that a written contract can be used for both an employee or for an independent contractor. The ability to terminate a person would be determined by the contract itself. Usually, with an employee, there is still language in the written agreement that allows the employer to terminate the employee either with or without cause.

On the other hand, if the person is an independent contractor and not an employee, usually there is no right of arbitrary termination because it is a binding contract for services. In this circumstance, the only way that the contract can usually be terminated is if the worker breaches the contract by failing to perform the actions they promised to provide to the business owner.

The second criteria that Idaho courts look to is whether the business owner can control the time and place that the work is completed. Again, this may sound simple, but sometimes it really isn't. However, examples usually go a long way in illustrating how this works. If you have a small business that operates a factory, it will likely have several different kinds of workers. The people who work at the conveyor belt for example don't really have any control over when they show up for work, the shifts that they work, and what it is that they are supposed to do when they are at work. Typically, this kind of worker is usually given a schedule that they are to follow and they are trained to do some very specific function or activity on the job. This person is an employee.

However, that same business owner may hire a janitorial company to come in and do cleanup work at the factory at night when the business is shut down. In this instance, the business owner may not specifically control the exact time or even the days that this company comes to do the cleaning work. They also may not control how many people show up to help complete the job. In this instance, Because the business owner isn't controlling every aspect of the work that is being done the janitorial workers appear to be independent contractors.

The next factor that courts look to is how are the workers paid. Most employees are paid at regular intervals. Additionally, to determine what that pay will be, often the business owner will require the workers to track their time through a time clock or some other time collection system. Employees are usually paid based on the number of hours that they actually work.

Alternatively, an independent contractor is a person who's being paid under the terms of the contract. Many instances, these types of workers are paid when the work is actually completed. This could still be at a regular interval, but it usually does not require time records to be kept. Rather, these workers are hired to complete a specific job, and they are paid when that job is completed.

Finally, courts look to who it is that provides the machinery and equipment that is used to complete the work. In the factory example above, the business owner is obviously providing the machinery and equipment in the factory that the employee works at. This would be the conveyor belt and any other machinery or equipment that is used by that employee to do the work while they are on the job.

However, the janitorial workers are likely bringing their own machinery and equipment in to complete their job. This may include vacuums, dusters, garbage sacks, portable garbage cans, mops, brooms and basic janitorial supplies.

While none of these criteria alone may be able to determine whether the workers are employees or independent contractors, Idaho courts look at all of them under the circumstances that exist to see what a person actually is.

If you have questions about whether the people working for you are employees or not, we are confident that we can help. We have assisted numerous business clients in dealing with both employees and independent contractors and determining which the business is associated with. We are confident that we can help you too!

Our team of Idaho business lawyers can help you with any of your business structure or operation needs. Whether you are seeking to create a new business or review a current business, we are available to discuss your options and answer your questions at an initial free 30-minute consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a free consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho business problems.