Contract Employee and Contract Worker Laws

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 What Is a Contract Employee, or Contract Worker?

Contract employees and contract workers are laborers who are not considered to be regular employees of a business or company. Such a worker may be hired on a part time or short term basis, generally to complete a specific task or job. An example of this would be constructing company property. Contract employees or workers are not usually included on the company’s payroll, and may operate as independent contractors in terms of the company’s normal business functions.

Contract labor refers to the process of a company hiring an outside party to perform labor for a specific business project. This generally involves the use of a labor contract, which details the terms of the agreement such as:

  • Projected completion date;
  • Project costs and budget;
  • Payment terms; and
  • Reimbursements.

This contract differs from an employment contract, which is used for hiring. In order to reduce as many future issues as possible, the contract should also state whether the worker is going to be considered a regular employee of the company, or a contract worker. It should also clarify whether the worker is entitled to any sort of employment benefits.

The Internal Revenue Service maintains very strict definitions of what constitutes a contract worker, for tax purposes. This strict definition is associated with the amount of control that is exercised by the employer over the worker’s labor, and has less to do with the way the worker is paid by the employer. Generally speaking, the more control that the employer has over the worker, the more likely it is that the worker will be considered a regular employee and not a contract worker.

What Are Some Of The Characteristics Of Contract Employee and Contract Workers?

As previously mentioned, one of the overarching factors used when determining whether a worker is considered to be an independent contractor would be the degree of control that the employer has over the work project.

Employers will generally have a greater degree of control over regular company employees, including:

  • The number of hours worked;
  • Pay rate and frequency; and
  • Benefits offered, such as health insurance benefits.

Comparatively, contract employees and contract workers have a much larger degree of control over their work. They may perform some or all of the work off of the business premises. Independent contractors may also control the pace at which they work, although they must usually finish by a predetermined deadline. Additionally, independent contractors will likely have control over the details associated with how the work is accomplished, as well as securing necessary materials.

Some other common examples of factors that may be considered when categorizing a worker include, but may not be limited to:

  • How often business is conducted between the worker and the employer;
  • Whether the independent contractor uses separate advertising, licensing, and production;
  • Whether the independent contractor supplies all of the tools and equipment needed to complete the job; and
  • Whether it will be the employer or the contract worker who will be held liable for any losses.

Independent contract workers are solely responsible for their actions and inactions. Generally speaking, the contract arrangement will state that the independent contractor will not act as an employee or agent of the company. What this means is that the contractor will need to hold some sort of liability insurance for most jobs in case their actions or inactions result in any legal claims against them, or the company.

Additionally, contract employees and workers are not authorized to enter into any contracts or agreements on behalf of the company who is acting as their employer.

What Rights Do Contract Employees and Contract Workers Have?

To reiterate, independent contract employees and workers are not entitled to the same rights and protections as regular employees. This is one reason why it is imperative to distinguish how a worker is to be categorized as soon as possible. Should any disputes arise between the employer and the worker, the worker would be entitled to different legal remedies depending on how they are classified.

Some examples of the differences between regular employees and independent contract workers include, but may not be limited to:

  • Independent contract workers pay their own taxes on the project, as there are no payroll deductions available;
  • Independent contract workers pay their own social security costs, which are generally covered for regular employees;
  • Contract employees and workers are not usually entitled to receive worker’s compensation, retirement, or health insurance; and
  • Independent contractors are generally paid in an amount that is agreed upon and recorded in the contract, either as a lump sum or in installments.

Taking these factors into consideration, the best way for an independent contract employee to protect themselves from being sued or taken advantage of would be to carry some sort of liability insurance. They should perform their obligations as specified in the contract according to the most safe manner possible in order to reduce the likelihood of being injured.

Contract employees and contract workers should refrain from operating outside of their agreement with the company who has hired them by contracting with a third party, or otherwise creating any sort of obligations for the company.

Although independent contractors are not generally entitled to receive worker’s compensation for injuries resulting from the job, there are some exceptions. One such exception would be if the contract worker was hired to do work that is inherently dangerous or especially risky. Independent contractors may consider purchasing worker’s compensation insurance as an alternative. If they are injured on the job and cannot receive worker’s compensation, they can file a claim with this insurance.

Another right that contract employees and contract workers have would be ownership rights. An independent contractor generally owns the rights to their work. The exception to this would be if the independent contractor and their employer have signed a written agreement specifying that the employer owns any and all of the works created by the contract worker for that specific job.

How Are Contract Employee and Contract Worker Disputes Resolved?

Disputes associated with contract employees and workers generally arise because of issues with how they are classified, and therefore paid. Many disputes can be prevented by clearly determining whether the worker will be an employee or a contractor, and producing a clear contract with enforceable terms.

Most disputes will be treated similar to a breach of contract claim. As such, the remedies will be much the same. The breaching party may be ordered to compensate the nonbreaching party for losses associated with their actions, such as missed income. In some cases, the court may order that the parties rework their contract in order to be more fair.

Do I Need a Lawyer for Help With Contract Employee and Contract Worker Laws?

Whether you are an employer or an independent contractor, you should consult with a local contract lawyer should you experience any issues regarding contract work. An experienced and local employment attorney will be best suited to understanding your state’s specific laws regarding contract work, and will be able to provide you with relevant legal advice.

An attorney can also review any contracts to determine whether they are enforceable, or negotiate the terms of the contract in your favor. Further, should any disputes arise, your attorney will also be able to represent you in court, as needed.

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