You Decide
Scenario Summary: Your Role/Assignment:
Your role is to decide if Karen is an independent contractor or an employee and discuss some of the preventative and ethical situations that are occurring in this case.
Questions:
1. Do you feel that Karen is an independent contractor or an employee? What is your rationale for this decision?
My feeling is that Karen is an Independent Contractor. My reasoning is based upon Karen’s originally hiring was on a project based basis with a contract between her and the company. When that was successful she was then asked to complete additional projects as before, thereby functioning as an independent contractor for the past 5 years. She has had the ability to have clients/jobs outside the local utility during that time as well. There were no benefits or tax payments made by the utility which as an employee she would have received thereby her status would be an independent contractor.
2. What factors do you feel help contribute to Karen being an employee?
There are several different factors that contribute to Karen being classified as an employee. Under the IRS 20-factor analysis there are a few that would clearly classify Karen under an employee status rather than independent contractor (Bennett-Alexander & Hartman, 2012). One of which is based on the continuing relationship between Karen and the utility company over the 5 years and another being based on the monthly salary distributions (based on the limited information given). Ultimately it is the IRS that determines the employee status and for them the biggest indicator of her being an employee would be based on if her employer, in this case ABC Utility, has the right to control or direct the way her job is completed.
3. What factors favor her being a contractor?
There are multiple factors in her favor of being an independent contractor, one of the biggest being her employer does not exert control over how the projects she’s assigned are completed. It is unclear how much control Karen’s supervisor Cynthia has in case based on the limited information give but it stems to reason that based on her continuation at the utility it was her ability to complete her assigned tasks competently. Another big factor is based on the fact she was hired initially under a contract project based and was then being asked to continue on with additional projects favors her independent contractor status. Karen received no benefits and ABC Utility paid no taxes on her wages wherein she received a 1099 yearly for her monies received places her as an independent contractor as well. Lastly Karen’s ability to have other clients/jobs outside ABC Utility, while few of them, she was still able to do outside work with no adverse action taken against her. It is with all of these factors that favor her status as an independent contractor.
4. What are some potential legal implications in the case? What should the utility do to rectify any wrongs in this situation?
Potential legal implications in the case would be related to back taxes such as Medicare and Social Security due to the government if her status is deemed to be an employee rather than an independent contractor since this is how ABC Utility has been paying her wages and filing tax documents. There would also be implications in
