Employee or Independent Contractor?
Maryland business owners are increasingly relying on independent contractors and less on employees as characterized by Maryland employment law. A number of financial benefits explain the attraction to use of independent contractors. A business can significantly reduce its costs by using independent contractors. These cost savings include those associated with minimum wage and overtime laws, worker’s compensation laws, social security employer contributions and state and federal taxes.
However, business owners often develop policies and practices that blur the line that distinguishes independent contractors from employees. Some employers ask worker’s to sign a written agreement characterizing the relationship between the business and the individual as an independent contractor relationship. Under Maryland employment law, the characterization of the relationship in a written agreement is not controlling. If a business and individual actually stand in relationship to each other as employer-employee, it is irrelevant that a written agreement exists in which the employee has agreed to call himself an independent contractor.
There are many factors that are relevant in determining if an employer-employee or independent contractor relationship exist. Generally, an employer-employee relationship exists when the business for which services are performed has a right to control and direct the individual who performs the services, not only as to result, but also as to the details and means by which the result is accomplished. An individual under Maryland employment law is an employee if he is subject to the will and control of the employer both as to “what” shall be done as well as “how” it shall be done.
The right to discharge also characterizes an employer-employee relationship. Independent contractors are in business for themselves and in a position to suffer profit or loss. By contrast, employers receive a guaranteed wage. Other factors that suggest an employer-employee relationship include the business providing tools, materials and a place to work to the person performing services.
A Maryland employment lawyer or business attorney can assist a business in accurately structuring an independent contractor relationship. The cost of treating an employer-employee relationship as an independent contractor relationship includes back pay, penalties for failure to provide worker’s compensation insurance and back taxes and related penalties. If you need legal guidance in determining how to structure an independent contractor relationship, click here.