Recently, I have received numerous questions from clients about whether particular workers are employees or independent contractors. This issue is on the minds of many people, because the U.S. Departments of Labor and Treasury last year announced a joint initiative to “crack down” on companies that misclassify employees as independent contractors. Some state governments have undertaken similar initiatives. The penalties for misclassification can be severe – back payroll taxes, overtime wages, unemployment compensation and workers compensation premiums, and other penalties.

But, whether a worker is an independent contractor or an employee is not always an easy call to make. Each situation turns on the facts. Further complicating matters is the fact that different governmental agencies use different tests to determine the correct classification. While all of the tests are similar, it is important to note that there are some differences between them. Notwithstanding that fact, most people utilize the IRS test when making a classification decision.

The potential problem with this approach was illustrated in the recent 1st DCA case, Brayshaw v. Agency for Workforce Innovation. There, the Agency for Workforce Innovation, the Florida state agency that handles unemployment compensation appeals, decided that the workers at issue were independent contractors. In making that decision, the Agency relied on the Florida common law test developed in the 1950’s and 1960’s. The appellants, workers who were seeking unemployment compensation benefits, appealed, and argued that the Agency should have applied the IRS test. The 1st DCA decided that the Agency had used the correct test, because the Florida unemployment compensation statute makes specific reference to the common-law test.

The lesson here is that classification problems can be difficult to evaluate, not just for companies, but also for their employment and tax lawyers. If a company has any doubt about its decision to classify a particular worker as an independent contractor, it should contact outside counsel to assist with the complicated analysis.