Independent Contractor Myth Goes Totally Viral

I’ve previously written about a common misconception that many employers have about independent contractors. It sort of goes like this. If you hire someone, you can call them an employee or an independent contractor. If the latter, you just need to get the person to sign an independent contractor agreement. Then, you don’t have to withhold income taxes or social security, pay unemployment premiums, or provide benefits.

According to the New York Times, the recession is resulting in more and more employers taking this approach. And employees are happy about it. They’re happy because they have jobs of some kind, sometimes called contingent, flexible, alternative, temporary, nonstandard, or contractor. Some employees cobble together two or three of these jobs to have something close to full-time employment.

The problem is that a lot these folks are, in all likelihood, employees — not independent contractors. Rather than repeating what I’ve already said on the subject, here’s a link to an earlier post I did. Each situation should be examined separately. There’s not a one-size-fits-all scenario, which is why lumping part-time people into one category is legally dangerous.

The Times article notes a government crackdown on employers that seek to save money by avoiding the withholding and payment of employment taxes. The U.S. Department of Labor and the Internal Revenue Service are the two federal agencies likely to be most interested. State agencies might also come calling if your state has an aggressive labor or income tax department. Given the pressure on state unemployment funds right now, state governments are also looking for employers that don’t pay unemployment premiums on independent contractors who are really employees.

If you have a large number of non-traditional employees working for you, get some legal advice. Weigh the risks. Make changes that are necessary.