It is critical for security guard companies to determine whether an individual providing service are employees or independent contractor. I receive daily inquiries from security guard companies telling me they hire independent contractors to perform contracts and are therefore not responsible for the work comp exposure. I advise that merely agreeing with someone on independent contractor status does not make it so, even if an independent contractor agreement is in place. The criteria to determine independent contractor or employee varies by state but I have listed general characteristics to help determine classification:
- Behavioral Control: Does the company have the right to direct or control how the work is done through instructions, training and/or other means?
- Financial Control: Are the business aspects of the worker’s job controlled by the payer? These include things like how the worker is paid, are expenses reimbursed, who provides tools, supplies, etc.
- If you have the right to control or direct not only what is done, but also how it is to be done, then workers are most likely employees.
- If the worker performing the service has the right to hire and terminate others, then the worker is more likely to be independent contractor.
Ramifications for misclassifying an employee as an independent contractor
There can be a number of costly legal consequences when treating an employee as an independent contractor. The employer can be required to:
- Reimburse employee for wages you should have paid them under the fair labor standards act, including overtime and minimum wage.
- Pay back taxes and penalties for federal and state income taxes, social security, Medicare and unemployment.
- Provide employee benefits, including health insurance, retirement, etc.
- Pay any misclassified employees workers compensation at audit.