You have a project that you need to get done, is outsourcing the way-to-go?
What is an Independent Contractor?
We’re glad you asked! Independent contractors are an excellent resource for most businesses. Bringing on an independent contractor helps you reach your goals, while maintaining separation between yourself, your business, and the contractor.
Generally, independent contractors are someone you hire to work on a specific project, or to complete a task. Most likely it’s specialized work that an employee internally is not able to perform. independent contractors provide a world of services, they can design out tech, graphic design, improve your facilities – the sky's the limit! But (and it’s a big “but”), in California, a worker is considered an employee unless and until the hiring entity (you) can establish otherwise. Meaning, you have to be mindful of how you’re bringing them into an aspect of your business because you want to avoid liability and responsibility for their actions should anything negative arise.
Obviously, the lawyers are always worried about the worst case scenario, independent contractors are an awesome, cost-effective resource. So don’t worry, pay attention to the details, and you can protect yourself and your business.
Read on if an independent contractor is sounding like something you need.
What’s The Project?
Projects come up in the course of running a business, many of them can be handled in-house depending on the company’s bandwidth. However, some projects might need a specialized touch, or even licensing specific for that job. Businesses can’t get Joe in accounting to build a bathroom at one of their retail locations. Independent contractors are often cheaper in the longer run, and better equipped to handle the job.
Consider The Project’s Specifications:
Is this something that’s a large, specific undertaking, does the company’s internal team have the resources and time?
Are any specialized licenses needed for compliance? (Think construction, food safety etc.)
Does the business need something done in a trade that it’s a complex field, do they need a master at their craft?
Determining if a project needs an independent contractor should be fairly straightforward, the trick is making sure that the business arrangement maintains a separation between the company and the contractor.
What Do You Mean “Separation”?
We’re going to break down some legalese (the convoluted language attorneys speak in.)
The big concern with independent contractors that businesses want to avoid is “liability.” Liability essentially means that if an individual is liable for something that went wrong, then that individual may be responsible for fixing the harm. Here’s an example, if a driver accidentally rear-ends another car, they’re probably liable to pay for the damages to the other car. In the independent contractor world, businesses do not want to be liable if the contractor has an accident or creates a harm
Businesses avoid liability for the harms caused by independent contractors by ensuring that the business is NOT an employer of the contractor.
What? Hang in there, we’ll explain!
As a legitimate, bona fide employer of an employee there are rights and responsibilities expected of both sides. Legally, employers have to provide certain things (wages, benefits depending on the situation, etc.) and employees contribute with work-product. On top of this, in many cases, if the employee creates a harm while working then the employer is liable for that harm. This is what businesses should avoid with independent contractors.
Businesses do NOT want to be classified as EMPLOYERS of INDEPENDENT CONTRACTORS.
Let’s Break Down These Goals:
Businesses do NOT want to employ independent contractors;
Businesses want to AVOID LIABILITY for potential harms caused by independent contractors;
Businesses want to contract out independent contractors for projects, and
Businesses want to get their awesome projects done.
We’re trying to sound serious, because this classification is a big deal, but don’t worry – there are ways of maintaining this separation. Independent contractors are a huge resource, mindful businesses should not be afraid to hire them on.
How Do Businesses Protect Themselves?
Best business practice is to engage in an Independent Contractor Agreement [see ours here]. A carefully drafted agreement will lay out a framework that will comply with CA law to maintain a distance between the company and the contractor.
Here’s an overview of what the law and the business should consider when bringing on an independent contractor for a project. We have an in-depth California Independent Contractor Guide here that gives the nitty gritty details.
Can We Get an “Amen” for Autonomy?
Autonomy is key, it’s gold, it’s the Reggie White of a business’s defensive line avoiding liability. Independent contractors must be autonomous. Essentially, if a party can establish that the business had control and direction over the independent contractor, it will be incredibly difficult to avoid liability for the contractor’s actions. Control and direction are classic signs of an employer-employee relationship. A business should avoid at all costs!
Some Signs of Control and Direction:
Paid by the hour or payment is referred to as “salary”
Is closely supervised by the company
Received training from the company
The company provides the tools and equipment needed to work
The business pays for the contractor’s expenses
The services provided are an integral part of the company’s business
The position is permanent or open-ended
The work replaced the work formerly completed by an employee
Is restricted from working for other businesses
Earns substantially all income from the work
This list is not exhaustive, basically the more the business controls the minutia and directs the project and work, the more likely they will be considered an employer.
There are basic ways to maintain the gold standard of separation through autonomy.
1. Make it Clear Through Titles Everywhere
The company should refer to the contractor as an “independent contractor.” That title should be on the agreement, on any invoices, in correspondence, screamed from rooftops. It sounds too easy, but should a dispute arise, courts take into account the appearance of business relationships. Did the contracting parties use formal language preferring a specific kind of arrangement such as an “independent contractor” agreement?
2. Hire Out For Skilled Labor
In California, independent contractors are by-the-job, skilled individuals or businesses. If a company hires out unskilled labor, such as that needed to paint a wall white or dig a hole – California defers to that independent contractor as having an “employee” status. This is something to be mindful of when hiring out for a project, some work by-design will involve hired “employees” instead of contractors.