Climate Change Project

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Articles on Law, Science, and Engineering

Who Is an Independent Contractor? (cont'd)



The legal status of an employee has important implications for the employee, the employer and third parties. Generally speaking, employers prefer to treat employees as independent contracting nonagents. The main reasons are that:

  1. Liability for injury to third parties shifts from the employer to the employee as the employment relation shifts from master-servant to contractor-independent contracting nonagent.
  2. Servants and independent contracting agents may legally bind the employer in transactions with third parties.
  3. The IRS requires employers to pay social security tax for servants, withhold their federal income tax, and comply with certain laws governing pensions and other benefits.
  4. In most states, it is substantially easier to fire an independent contractor than a servant.

On the other hand, employers prefer to treat an employee who is seriously injured on the job as a servant because employer liability to servants is limited in most instances by state laws governing workers' compensation.

Employees must balance the freedom of being an independent contractor with the increased legal and tax liabilities and reduced remedies for their own job-related injuries. It is important for employees to understand that they may have increased liabilities because of their employment status. Licensed professionals must retain the independence to make expert decisions because they cannot escape their liability for such decisions. Finally, employees should insist upon proper employment classification to avoid unnecessary liability without the corresponding benefits associated with independent contractor status.

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