EUCLID MANAGERS®
has served the independent agent
since 1976, offering a portfolio
of group health, professional
liability, individual life, health,
disability, annuity and long-term
care products.
We proudly represent many
fine carriers including
Group Products:
UnitedHealthcare of Illinois
Delta Dental of Illinois
MetLife
Concierge Services:
LifeLock
HealthiestYou
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American General Life Companies
AXA/Equitable
Banner Life
Delta Dental of Illinois
Genworth Financial Insurance Co.
Guarantee Trust Life
John Hancock Life
Lincoln National Life
MetLife
Principal Financial
Prudential Financial
Transamerica
UnitedHealthOne
West Coast Life
Contact Information
234 Spring Lake Drive
Itasca, Illinois 60143
Phone: (630) 238-1900
Outside Chicagoland:
(800) 345-7868
Fax: (630) 773-8790
Visit us at:
www.euclidmanagers.com
Critical Employment Law Definition - Employee versus
Independent Contractor
Brokers have played – and continue to play – a critical role in assisting
employers with employee benefits. For many small employers, their health
insurance broker is, for all intents and purposes, the client’s human resources
guru.
With the implementation of the Affordable Care Act, ACA, human resources
and employment law issues are more important than they’ve ever been.
Now, a misunderstanding of just who is an employee, can have serious
continued on page 2
A letter from Karen Knippen
Just who is – and isn’t – an employee is one of the most critical issues since
eligibility for coverage under a benefit plan is triggered by employment
status. We can alert employers to the factors they should consider in making
a determination of employment status and why it’s important. Then we can
encourage them to seek out appropriate legal guidance.
Sincerely yours,
Karen Knippen, RHU, REBC, CLTC
Senior Vice President
EUCLID MANAGERS® has been serving the independent agent since 1976 with a portfolio of group health, professional
liability and individual life and health, annuity and long-term care products. We proudly represent UnitedHealthcare,
Delta Dental of Illinois, MetLife and Humana Individual. We encourage your feedback and suggestions. Please call
your EUCLID MANAGERS® Marketing Representative or Marcy Graefen at (630) 238-2915 for more information. Outside
Chicagoland, call (800) 345-7868. Website: www.euclidmanagers.com
repercussions. This is especially true if the employer
would be an “applicable large employer” (ALE) with
50 or more full-time equivalents but for the fact that
several workers are classified as independent contractors
rather than employees. This issue of Reflections
reviews factors to consider when an employer is
determining whether a worker is an employee or an
independent contractor.
Common Law Employee
According to the Internal Revenue Service, “under
common-law rules, anyone who performs services for
an employer is an employee if the employer can control
what will be done and how it will be done.” Employers
need to assess whether a worker is an employee or an
independent contractor in order to comply with many
employment laws including the ACA.
Determining which individuals providing services to
an employer are employees is determined by the facts
and circumstances of the situation. The degree of
control and independence is determined by looking
at three (3) main categories:
1.
2.
3.
Behavioral
Financial
Type of relationship.
Employers have to look at the entire relationship.
Merely having a contract with an individual that states
someone is an independent contractor isn’t sufficient.
Further complicating matters are additional categories
of workers. These include statutory employees and
statutory nonemployees.
A statutory employee requires that certain independent
contractors be treated as employees by statute – statutory
employees – for certain employment tax purposes.
Statutory employees are often sales related. Statutory
non-employees are licensed real estate agents and
some other direct sellers, among others.
Many employers have heard of the 20 factor test to
determine whether a worker is an independent
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Reflections
contractor or an employee. While a review of the
20 factors is helpful, a worker still may be an
employee after passing this test.
The 20 factors identified by the
IRS are as follows:
1. Instructions: If the person for whom the services
are performed has the right to require compliance
with instructions, this indicates employee status.
2. Training: Worker training (e.g., by requiring
attendance at training sessions) indicates that the
person for whom services are performed wants the
services performed in a particular manner (which
indicates employee status).
3. Integration: Integration of the worker’s services into
the business operations of the person for whom services
are performed is an indication of employee status.
4. Services rendered personally: If the services are
required to be performed personally, this is an indication
that the person for whom services are performed is
interested in the methods used to accomplish the work
(which indicates employee status).
5. Hiring, supervision, and paying assistants: If the
person for whom services are performed hires,
supervises or pays assistants, this generally indicates
employee status. However, if the worker hires and
supervises others under a contract pursuant to which
the worker agrees to provide material and labor and
is only responsible for the result, this indicates
independent contractor status.
6. Continuing relationship: A continuing relationship
between the worker and the person for whom the
services are performed indicates employee status.
7. Set hours of work: The establishment of set hours
for the worker indicates employee status.
8. Full time required: If the worker must devote
substantially full time to the business of the person for
whom services are performed, this indicates employee
status. An independent contractor is free to work
when and for whom he or she chooses.
9. Doing work on employer’s premises: If the work is
performed on the premises of the person for whom the
services are performed, this indicates employee status,
especially if the work could be done elsewhere.
10. Order or sequence test: If a worker must perform
services in the order or sequence set by the person for
whom services are performed, that shows the worker is
not free to follow his or her own pattern of work, and
indicates employee status.
11. Oral or written reports: A requirement that the
worker submit regular reports indicates employee status.
12. Payment by the hour, week, or month: Payment
by the hour, week, or month generally points to
employment status; payment by the job or a commission
indicates independent contractor status.
13. Payment of business and/or traveling expenses. If
the person for whom the services are performed pays
expenses, this indicates employee status. An employer,
to control expenses, generally retains the right to
direct the worker.
14. Furnishing tools and materials: The provision of
significant tools and materials to the worker indicates
employee status.
15. Significant investment: Investment in facilities
used by the worker indicates independent contractor
status.
16. Realization of profit or loss: A worker who can
realize a profit or suffer a loss as a result of the
services (in addition to profit or loss ordinarily
realized by employees) is generally an independent
contractor.
17. Working for more than one firm at a time: If a
worker performs more than de minimis services for
multiple firms at the same time, that generally indicates
independent contractor status.
18. Making service available to the general public: If
a worker makes his or her services available to the
public on a regular and consistent basis that indicates
independent contractor status.
19. Right to discharge: The right to discharge a worker
is a factor indicating that the worker is an employee.
20. Right to terminate: If a worker has the right to
terminate the relationship with the person for whom
services are performed at any time he or she wishes
without incurring liability that indicates employee
status.
Conclusion
There are benefits to employers for the use of
independent contractors. Employers don’t have to
pay employment taxes or provide benefits for bona
fide independent contractors. Independent contractors
exist because there are services that employers need
that may not be directly related to their business – yet
the work still has to be done.
The ACA’s employer responsibility rules make it ever
more critical that employers correctly classify workers.
First, as mentioned previously, not counting workers
when making the assessment of “applicable large
employer status” can result in an employer assuming
they aren’t subject to the employer responsibility
requirements, when they, indeed, should be. And, for
those employers who are ALEs, not offering workers
coverage assuming they’re independent contractors
could wind up with the employer being subject to
penalties for not offering coverage.
Some employers may believe that ignoring this issue is
a prudent course. But, the IRS and federal Department
of Labor are stepping up audits on employee status.
And, they’ve enlisted the aid of state agencies to ferret
out misclassified workers.
Employers should conduct a thorough review of workers
to determine classification status while there is still
time to make needed changes. Ignorance of who is an
employee – and who isn’t – has always carried risk
and the ACA has only increased the cost of error.
Reflections
-3-
A service publication for brokers from
Euclid Managers®, proudly representing
UnitedHealthcare of Illinois, Delta Dental of Illinois,
MetLife and UnitedHealthOne.
HealthiestYou and Lifelock available through Euclid Managers Concierge Services.
Visit us online www.euclidmanagers.com.
Legislative Review is published by Euclid Managers®, 234 Spring Lake Drive., Itasca, IL 60143. For more information, contact your Marketing Representative or Marcy Graefen
at (630) 238-2915 or marcy@euclidmanagers.com. Outside Chicagoland: (800) 345-7868, Fax (877) 444-2250. © Permission to quote with credit to source.
Critical Employment Law Definition - Employee versus
Independent Contractor
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