Independent Contractors or Employees

An independent contractor is by definition: A person or business that performs services for another person under an express or implied agreement and is not subject to the others control, right to control, or the manner and means of performing the services; not as an employee. One who engages an independent contractor is not liable to others for the acts or omissions of the independent contractor.

Employee vs. Independent Contractor

The distinction between these two is most often relevant in the tax arena, State labor department regulations and for insurance purposes regarding Workers Compensation Insurance classifications.

There are a number of factors which need to be considered in making the decision whether people are employees or independent contractors. No one factor is controlling.

In the two primary states in which we do business, Vermont and New Hampshire, each state’s Labor Departments have their own criteria for deciding who is an independent contractor or employee. We suggest that you contact your individual state’s department of labor for their criteria.

Vermont

Vermont utilizes a two test utilization process for determination. The first part of the test is “right of control” and the second part is “nature of business”. They have specific questions in each area to further define the employment relationship.

New Hampshire

New Hampshire utilizes a similar process. They have 13 criteria in which all must be met in order for an individual to be deemed an independent contractor. In general there are three distinct areas of consideration that help to define whether an individual is an independent contractor or an employee.

1. The degree of control exercised by the company over the work of its workers. An employer has the right to control an employee. The number and frequency of breaks, how the work is performed, and the type of equipment used, the work schedule and the right to supervise and control such details made by the company. If there is an absence of these controls or supervision, then a finding of an independent contractor status might be more appropriate.

2. Do workers work for multiple businesses or regularly for one business? Having separate offices or places of work, supplying your own tools and equipment, having individual licenses, a specific business name, telephone number, multiple customers would suggest an independent contractor versus someone who works at the same facility on a daily basis.

3. Term and duration of the relationship. An employment relationship generally contemplates a continuous rendering of services for an indefinite period of time. An independent relationship has a defined period of time.

The means and method of compensation also help to define the relationship. An employee is paid on a time, piece work, commission or combination of any of these methods basis. An independent contractor is paid an agreed amount according to an agreed formula.

Why as your insurance agent are we talking about this?

If you are a contractor and have workers compensation insurance or work for someone who does, the cost of your insurance can be greatly impacted. Chances are you’ll be asked for or need to ask of someone else for proof of workers compensation insurance. You’ll need a Certificate of Insurance — as your agent, we’ll be happy to provide this for you.

See article “Certificate of Insurance”