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?
The differentiation between an independent contractor and an employee is a critical one for any employer to make. Furthermore, this choice can have significant implications for the business regarding additional fees and taxes. I believe that Karen is indeed an independent contractor based on a number of few factors. In this situation, Karen was initially hired as a temporary employee. Moreover, Karen has functioned as an independent contractor for 5 years. If one were to look at her employment status, they would see that Karen has additional clients outside of the local utility as well as the fact that she has not received benefits or proper tax documentation for this period time. For these reasons, Karen should be classified as an independent contractor for the local utility.
2. What factors do you feel help contribute to Karen being an employee?
If I was being the devil’s advocate based on 20-factors analysis and determination of form SS-8, here are some of the factors that may apply to Karen:
* Integration: Workers whose services are integrated into business operations or significantly affect business success are likely to be considered employees.
Karen was doing several projects continuously for the human resource departments which began as a project to develop training materials for an upcoming session on diversity and then her manager liked her work and ask for more projects.
* Extent of personal services: Companies that insist on a particular person performing the work assert a degree of control that suggests an employment relationship.
Cynthia, Karen’s manager, assigned additional projects after the first one for Karen to work on. Due to the fact that her work had been controlled by managers, gives her power of an employment relationship.
* Continuity of relationship: A continuous relationship between a company and a worker indicates a possible employment relationship.
Karen has been working for Utility for five years. So, this is another evidence of her status as an employee.
* Method of payment: Hourly, weekly, or monthly pay schedules are characteristic of employment relationships, unless the payments simply are a convenient way of distributing a lump-sum fee.
Karen was paid a monthly base salary of $10,000 per month.
3. What factors favor her being a contractor?
Karen was first brought on to work on a single project but overtime has worked with the company for about 5 years on additional projects but that doesn’t allow her to then become an employee. In fact an independent contractor arrangement can involve an ongoing relationship for multiple, sequential projects which has happened in her case. She filled form 1099 but not a W-2 which employers use to report payments made to someone who is not their employee such as an independent contractor. Most importantly Karen had multiple clients over the years including one she was retained for. If a worker regularly makes services available to the general public, this supports the description of an independent contractor. In this situation Karen simultaneously provided services for several unrelated companies.
Also there is an issue of incorporated status which means workers who are incorporated are generally considered to be working for themselves, not as your employee and doesn’t receive any benefits other than pay.
4. What are some potential legal implications in the case? What should the utility do to rectify any wrongs in this situation?
One of