Human Resource Management: Employees vs. Independent Contractors

Employee vs. Independent Contractor Employees vs. Independent Contractors John, who owns his own consulting firm, is picked to work for Make-a-Bed, a furniture manufacturer and distributor, and since he is not readily available as a full time employee, it is agreed that he should work as independent contractor. He is expected to study the business and make recommendations accordingly, to arrange for his own travel and meetings, dedicate about 20 hours each week to the project, and is to be paid on an hourly basis after presenting an invoice.

However, the other businesses John deals in become a cropper come and he ends up dedicating more of his time to Make-a-Bed. After one year has passed and he has not made recommendations, John is replaced with another consulting agency and he attempts to claim unemployment benefits with Make-a-Bed as the last employer. In court, John refutes any claims that he agreed to work as an independent contractor.

He testifies that he notified the Human Resource Department (HRD) any time he would arrive early or late, he worked for normal business hours, and even had an office assigned to him by the company. His checks were also issued from the business payroll account. On the other hand, the company claims that John worked for extra hours for security reasons, he had an office due to access to the business computer system, and that he was not required to give any notifications to HR.

Furthermore, he does not receive any employment benefits. According to the Internal Revenue Service, IRS (2015), it is imperative for employers to establish the business relationships that exist between then and persons performing any given service. The IRS claims that individuals can either be employees or independent contractors. In the case of employees, the employer must withhold or pay federal income, Medicare and social security taxes, and also pay unemployment tax on their wages. For independent contractors, employers do not have to pay federal taxes on payments.

To determine whether an individual should be treated as an employee or an independent contractor, all the information that shows evidence of the degree of independence and control should be put into consideration. The IRS (2015) states that the facts that show this evidence are classified into financial control, behavioral control, and the relationship that exists between the parties Behavioral control presents facts that show exactly who has control over the business, the individual or the employee.

For the employees, the employer gives specific details of how work should be carried out while for independent contractors, instructions on how the work should be carried out are not give (IRS, 2015). Employees are also trained while independent contractors are left to rely on their own expertise. Financial control entails the payments that exist between the employer and the individual. They include (IRS, 2015): The unreimbursed expenses the worker has: Independent contractors generally have more unreimbursed expenses.

The workers investments: Independent contractors invest in their tool and facilities while employees do not. How the worker makes services known to the relevant market: Independent contractors can advertise, establish business locations and seek more opportunities. Employers cannot do such activities. How the worker is paid by the business: Employees are paid wages on hourly and timely basis, while independent tractors are often paid a flat fee on material and time basis. However, some contactors are also paid hourly. Independent contractors can make profits or losses.

The type of relationship is determined by written contracts, employment benefits provided, the length of time the relationship goes on and the importance of services performed to the business. In terms of behavioral control, John was only given general instructions on the nature of the employment, but he was required to make his own recommendations after assessing the business. In addition, John was to make his own travel and meeting arrangements and he was also not trained.

In regards to financial control, like most independent contractors, John has a couple of unreimbursed travel expenses and his consulting firm can still advertise, seek new business, and gain profits. However, like most employees, he uses the company's business computer system and he is paid on an hourly basis. The type of relationship is rather hard to determine because there is no written contract and he does not receive any employment benefits - yet he has an office and is paid out of the normal payroll system.

In light of all the conflicting facts, it is proper to classify John as an independent contractor particularly because Make-a-Bed terminated his contract after the specific time they had indicated, in which he had not accomplished his duties. This is in agreement with the IRS (2015), which.