A consultant with a business license and liability insurance poses no risk to the client company.
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 consultant with a business license and liability insurance poses no risk to the client company.
A business license or liability insurance alone will not determine the actual relationship between the two parties. Therefore, their existence will not eliminate the risk from using the consultant’s services.
This myth is closely related to the prior one, regarding consultants with their own corporations. While a business license and professional liability insurance are generally viewed as “indicators” of an independent business, they alone will not determine the actual relationship between the two parties. The total picture of the working relationship must be considered.
There have been numerous cases where the individual contractor had both a business license and professional liability insurance yet was still found to be an employee of the company. This finding can result in back pay and benefits, and in the case of a tax audit, in an assessment for additional taxes, penalties and interest for the company that incorrectly classified the employee as an independent contractor.
A number of other factors, such as the right to direct and control the details of the work, are more important than a business license or insurance when determining the status of a consultant.
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