- Proper classification of workers as employees or independent contracts is fact-sensitive.
- Misclassification of workers results in severe state and federal monetary penalties.
- Businesses should seek help under the CARES Act and workers should pursue individual assistance.
As the federal government has issued new guidelines extending social distancing through the end of April, many small businesses are struggling to keep their brick-and-mortar stores open and their online presence vibrant. Some industries are more malleable and employers have been able to pivot their products and their services. Most, however, are not, due to no fault of their own.
Businesses with less than 500 employees are the backbone of America, and the savvy business owner knows that his greatest resource is human capital. To that end, employers are attempting to find creative ways of how to keep their employees engaged while at the same time ensuring that there will still be a business to run when this pandemic ends.
ContractsCounsel knows that our clients mean well when they try to help, but even the best of intentions can be unlawful and open up a small business to even greater liability. One question we have received with greater frequency is whether it is possible to convert a full-time, salaried employee to an independent contractor, and if so, how can it be done? Below are some guidelines.
Employee v. Independent Contractor.
One of the biggest mistakes a small-business owner can make is misclassifying a worker as an employee or an independent contractor. It is a fact-sensitive inquiry. There is a rebuttable presumption that a worker is an employee unless he or she works free from the employer’s control and direction, the work is performed outside the “usual course” of business, and the type of work is customarily considered an independent trade or occupation. Typically an employer should seek the advice of a human-resources expert or a labor/employment attorney before making such a determination.
Misclassification is important because simply changing a W-2 worker to a 1099 worker subjects an employer to significant monetary penalties by state governments. The Internal Revenue Service can also levy penalties for taxes that were not withheld from the employee. Penalties are higher in cases where there is demonstrated intent to deceive the federal tax system. Changing the status of your employee to an independent contractor by written agreement also does not relieve an employer from their liability for workers’ compensation and unemployment compensation claims.
Recommendation for Small Businesses.
Our recommendation to preserve your business and best protect your workers is to seek assistance under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and to instruct both your employees and your independent contractors to seek unemployment benefits. Do not seek to change the status of your workers at the time, but rather evaluate the options available under CARES for a loan through the Small Business Administration and encourage your workers individually to pursue all available resources to them at the state and federal level.
Recommendation for True Independent Contractors/Gig Economy Workers.
Even if your small business employees just one person – you – you may actually be an employee and eligible for unemployment insurance, depending on the length of your business tenure and status of incorporation. And even if you’re not eligible for unemployment insurance, consider applying for assistance under the Pandemic Unemployment Assistance program which aids freelances and self-employed people ineligible for unemployment insurance.
Meet some of our Lawyers
Respected, driven, ethical, and high energy legal and business professional with strong focus on litigation, contracts and compliance issues. Critical management experience includes client development, developing core initiatives, and forecasting risk in major corporations. Strong legal research, analytical and problem solving skills with demonstrated adaptability in a multifaceted legal practice including delivering high value results in a Fortune 10 environment. Core competencies include: Tactical and strategic legal direction and support to clients which includes contract negotiation, drafting and review, business planning, and a passion for relationship management. Excellent legal research, writing, analytical and problem solving skills including legal training and compliance with regulatory requirements and corporate policies. Coordinates with in-house legal and business resources for team building with excellent verbal communication skills, coaching, and leadership.
I am a sole practitioner who has been in practice for over 25 years. I have represented many small businesses during this time. Let me bring my expertise to your business.
Diana is a registered patent attorney and licensed to practice law in Florida and in federal courts in Florida and in Texas. For nearly a decade, Diana has been known as the go-to brand builder, business protector, and rights negotiator. Diana works with individual inventors, startups, and small to medium-sized closely held business entities to build, protect, and leverage a robust intellectual property portfolio comprising patents, trademarks, copyrights, trade dress, and trade secrets.
Brandon is a Texas Super Lawyer®, meaning he is among the top 2.5% of attorneys in his state. He has designed his practice to provide a unique ecosystem of legal support services to business and entrepreneurs, derived from his background as a federal district law clerk, published biochemist, and industry lecturer. Brandon is fluent in Spanish, an Eagle Scout, and actively involved with the youth in his community. He loves advocating for his clients and thinks he may never choose to retire.
Firm rated best ADR firm for Wisconsin and won an award for cultural innovation in dispute resolution from acquisition international magazine in 2016 and it was rated "Best of Brookfield" by Best Businesses in 2015. Attorney Maxwell C. Livingston was rated 10 best in Labor & Employment Law by American Institute of Legal Counsel and 40 Under 40 by American Society of Legal Advocates for 2016; he also won 10 Best by American Institute of Family Law Attorneys. He is licensed in Wisconsin in all state and federal courts, and in the 7th Circuit Court of Appeals, wherein he won a landmark decision in McCray v. Wielke.
Richard is a wizard at taking on bureaucracies and simply getting the job done. His clients value his straight-forward counsel and his ability to leverage a top-notch legal staff for efficient and effective results. Richard is a professional engineer, professor of law, and has been named among the top 2.5% of attorneys in Texas by the Super Lawyers®. When he is not driving results for his clients, Richard can be found with his small herd on his Texas homestead.
Experienced attorney and tax analyst with a history of working in the government and private industry. Skilled in Public Speaking, Contract Law, Corporate Governance, and Contract Negotiation. Strong professional graduate from Penn State Law.
I am an attorney admitted in NY, with over 6 years of experience drafting, reviewing and negotiating a wide array of contracts and agreements. I have experience in Sports and Entertainment, Real Estate, Healthcare, Estate Planning and with Startup Companies. I am confident I can assist you with all of your legal needs.
Rishma D. Eckert, Esq. is a business law attorney who primarily represents domestic and international companies and entrepreneurs. A native of both Belize and Guyana, she remains engaged with the Caribbean community in South Florida: as a Board Member and General Counsel for the Belize American Chamber of Commerce of Florida, and Member of the Guyanese American Chamber of Commerce. She holds a Bachelor of Laws degree (LL.B.) from the University of Guyana in South America, a Master’s degree in International and Comparative Law (LL.M.) from Stetson University College of Law in Gulfport, Florida, and earned a Juris Doctor degree (J.D.) from St. Thomas University School of Law in Miami, Florida. Licensed to practice in the State of Florida and the Federal Court in the Southern District of Florida, Mrs. Eckert focuses her passion and practice on domestic and international corporate structuring and incorporation, corporate governance, contract negotiation and drafting, and trademark and copyright registrations.
Mark A. Addington focuses his practice primarily on employment litigation, including contractual disputes, restrictive covenants (such as non-competition, non-solicitation, or confidential information restrictions), defense of wage and hour, harassment, retaliatory discharge, disability, age, religion, race, and sex discrimination.
Founder and Managing partner of Emerald Law, PLLC, a business law firm specializing in contract drafting and corporate transactions. Kiel worked as in house counsel for a variety of companies before launching his own firm, and most recently served as the Chief Legal Officer for an international private equity firm.