With the busy spring season approaching, many floral shops, design studios, and wholesale suppliers bring on extra help to deal with the rush. There are several implications that follow after you classify new workers as employees or independent contractors—including your insurance premium—so it pays to know the difference and make the correct choice in each situation.
Beyond impacting insurance premiums, whether a worker is an independent contractor or traditional employee changes what benefits are required. With employees, you may have to consider offering them a worker group health insurance plan, ERISA-covered retirement plan, Family and Medical Leave Act time, along with other benefits. These things aren’t traditionally offered to independent contractors.
Because of the benefits angle, hiring contractors can look like a way your business can save money. Some workers even prefer being considered contractors. The reality is, that only when IRS guidelines are met, may workers be classified as independent contractors. Keep in mind:
- Workers may not request or negotiate independent contractor status
- An employer cannot control whether a worker is classified as an independent contractor by having the workers sign an independent contractor agreement or by issuing them a 1099 form
- All temporary workers are not independent contractors
- In many cases, workers doing the same work as W-2 employees would not properly be classified as independent contractors.
If you decide that a temporary or part-time employee can’t fulfill your needs and you want to use an independent contractor, be sure to:
- Hire independent contractors who are organized as either a company or LLC
- Check for valid certificates of insurance
- Issue a 1099 form
- Require invoices for payments
Hiring an independent contractor also requires having a strong agreement in place to protect yourself and your business. Here are some things to avoid in your agreement:
- Exerting too much control
- Relying on forms or templates
- Making the independent contractor subject to employee handbooks or employer policies
- Including restrictive covenants, non-compete, and exclusivity provisions
- Giving the independent contractor management, functional business unit, or policymaking duties and responsibilities
- Including work-for-hire provisions
- Restricting the contractor’s ability to delegate and assign tasks
- Utilizing expense reimbursement provisions
- Requiring schedules and time-keeping
- Providing any employee benefits
- Including at-will termination
- Agreeing to cover business losses
- Providing any insurance
You also need to understand the hiring of subcontractors, contractors, or contract workers can affect your insurance—particularly your premium. If contractors provide valid certificates of insurance, your workers’ compensation premium won’t be affected, and your general liability premium may be reduced.
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