Independent Contractor vs. Employee: HR Case Study Analysis
This paper analyzes a human resources case study involving John Engineer, a consultant hired by furniture manufacturer Make-a-Bed as an independent contractor to develop a plant consolidation strategy. When Engineer was released after failing to deliver results and subsequently filed for unemployment benefits, the question of his employment status became central. Using the IRS Common-Law Rules from Publication 15A, this paper evaluates key factors — including unreimbursed expenses, absence of employee benefits, lack of permanency, and the nature of his work relationship — to determine that Engineer was an independent contractor rather than a regular employee. The paper concludes with three recommended HR process improvements to prevent similar disputes in the future.
- Case Overview: Facts of the Make-a-Bed contractor dispute
- IRS Common-Law Rules Analysis: Applying IRS criteria to Engineer's situation
- Determining Engineer's Employment Status: Conclusion on independent contractor classification
- Recommended HR Process Improvements: Three HR policy steps to prevent future disputes
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What makes this paper effective
- Applies a specific regulatory framework — the IRS Common-Law Rules — directly to the facts of the case, grounding conclusions in authoritative criteria rather than opinion.
- Uses IRS example cases (Example 3 and Example 5) as analogical evidence, strengthening the classification argument by reference to recognized precedent scenarios.
- Acknowledges counterarguments (no written contract, office space provided, reporting behavior) before rebutting them, demonstrating balanced analytical reasoning.
- Closes with practical HR recommendations, connecting legal analysis to professional practice.
Key academic technique demonstrated
The paper demonstrates applied legal-regulatory analysis: it takes a defined set of classification criteria (IRS Common-Law Rules) and systematically tests each criterion against the case facts. This "criteria-to-facts" method is a standard technique in business law and HR coursework, producing a structured, defensible conclusion rather than an intuitive judgment.
Structure breakdown
The paper opens with a fact summary establishing the dispute, then moves into a multi-factor IRS analysis covering expenses, benefits, permanency, and business integration. It addresses potential counterarguments before affirming the independent contractor classification. The final section pivots to forward-looking HR policy recommendations, giving the paper both an analytical and a prescriptive dimension.
Case Overview
A consultant named John Engineer was hired by Make-a-Bed, a furniture manufacturer, to help consolidate its three manufacturing plants. He was not hired as a regular employee but rather as an independent contractor. Engineer was given one year to develop a strategy for consolidating the company's operations across its facilities in Maryland, Pennsylvania, and Delaware. He was to be paid on an hourly basis and was expected to work approximately 20 hours per week.
After a year passed without Engineer presenting any findings or recommendations, the company released him. He subsequently filed for unemployment benefits, listing Make-a-Bed as his last employer, but was denied. Engineer appealed the decision.
At the hearing, the HR representative acknowledged that the company had established an automatic payment system for Engineer — as it does for regular employees — but maintained this was done by accident and not by design. The company contended that Engineer was not a regular employee: no FICA payments were withheld from his checks, and there were no health insurance or vacation pay deductions. The HR department argued that these facts clearly demonstrated Engineer was not entitled to unemployment benefits because he was not a full-time, regular member of the workforce.
IRS Common-Law Rules Analysis
Under the IRS Common-Law Rules (CLR), independent contractors are "more likely to have unreimbursed expenses than are employees." In this case, Engineer traveled frequently to three factory locations but was not reimbursed for travel expenses — a factor that supports the conclusion that he was not an employee. Additionally, Engineer was free to make his services available to other businesses, and he did so. The CLR explicitly notes that independent workers are free to consult with other companies in addition to the one with which they have a business association.
The IRS further notes that an independent contractor is not likely to receive "employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay." Engineer was not offered any of these benefits. There was also no "permanency of the relationship" in Engineer's case, which further suggests he was not an employee. Moreover, Engineer was not a part of the regular business activities of Make-a-Bed — another indicator that, from an objective standpoint, he did not function as an employee.
Certain facts could have weighed in Engineer's favor. There was no written contract specifying that he was an independent contractor, and he did have an office within the company's facility. He also claimed he was expected to report to HR whenever he would not be able to come into that office. However, HR disputed this assertion, maintaining that Engineer notified HR only as a courtesy and not because the company imposed any such requirement.
Despite these ambiguities, Engineer's situation closely resembles IRS Example 5, "Computer Industry," in which Steve Smith works on a one-time project for a company (Megabyte) that provided "no instructions beyond the specifications." Smith is classified as an independent contractor. This parallels Engineer's situation: he was given an assignment and expected to develop a strategy independently. Engineer's case is also analogous to IRS Example 3, in which Helen Bach performs auto services using space furnished by a company but supplies her own tools, sets her own hours, and employs her own staff. She is nonetheless classified as an independent contractor — the same legal conclusion that applies to Engineer. For further background on how the IRS distinguishes these categories, see the Wikipedia overview of independent contractor status in the United States.
References
Internal Revenue Service. (2015). Common-Law Rules / Publication 15A (2015). Retrieved March 28, 2015, from http://www.irs.gov.
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