A Signed Independent Contractor Agreement Substantiates the Classification!
Welcome back to the blog series on the 13 Myths of Independent Contractors. We created this series to help you navigate some of the potential legal minefields caused by the complex legal environment surrounding independent contractors. The content from this series comes from the whitepaper: Independent Contractor Myths versus Reality.
Myth: A signed independent contractor agreement substantiates the classification.
Reality: A contract by itself, even one willingly signed by both parties, does not determine the true worker status in the relationship.
This is one of the most common myths shrouding the independent contractor relationship. Just because there is a contract, signed by the contractor and the project sponsor, stating that the consultant is an independent contractor responsible for their own taxes and benefits, does not mean that the IRS, DOL, or a state agency will not dispute the contractor’s status.
For example, under the FLSA, FMLA, and MSPA, you are an employee if, as a matter of economic reality, your work indicates that you are economically dependent on an employer, and you are an independent contractor if you are in business for yourself. Any label that worker or the employer give to the relationship, even in an agreement signed by both parties, is irrelevant.
Instead, what matters is whether the reality of the situation indicates that the worker is economically dependent on the employer (an employee), or in business for themselves (an independent contractor).
Similarly, for federal tax purposes, signing an independent contractor agreement does not make the worker an independent contractor. It may be just one relevant fact in determining the relationship of the parties.
The bottom line is that a contract does not supersede employment law. Federal and state courts across the country have consistently held that a written contract only helps to show the intent of the two parties – a contract by itself will not determine the true status of the relationship. Indeed, it is not the contractual label, but rather the actual working relationship between the worker and the engaging entity, that controls the determination.
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