TOPIC 6 BUS 340 Employee vs. Independent Contractor
The purpose of this assignment is to identify laws and federal regulations governing employment.
Consider what you have learned about employment laws and federal regulations governing employment, particularly regarding the distinctions between independent contractors and employees and how business is conducted with each. Read the scenario below.
Scenario
Madrid and Berne is a top-rated accounting firm with offices in Phoenix and Tucson. Madrid and Berne wanted to provide bookkeeping as an additional service to its clients. It hired Joan Newman Business Services, with offices in Phoenix, Flagstaff, Tucson, and Yuma, to perform contract bookkeeping services for Madrid and Berne clients who requested and needed such services. Madrid and Berne entered into an independent contractor agreement with Joan Newman Business Services. The contract stated that Joan Newman is an independent contractor and agrees that her business is an independent contractor of Madrid and Berne.
After entering into the agreement, Joan worked solely on jobs assigned by Madrid and Berne and was paid a commission for the work. The commission was based upon the fees determined by Madrid and Berne and paid by the clients to Madrid and Berne. Joan was paid on a weekly basis. She used available and unused office space at Madrid and Berne, along with Madrid and Berne’s equipment and supplies. This arrangement made it easier for clients to utilize Joan’s services and be familiar with the offices. Madrid and Berne reviewed Joan’s work and returned faulty work to her for corrections before delivering the completed work to the clients.
Assignment
In a 500-750 word paper, apply what you have learned about the distinctions between employees and independent contractors to the scenario by discussing the following.
Provide an explanation of why it is important to know the distinctions between employees and independent contractors when operating a business.
Discuss the key factors for determining Joan’s employee classification using the concepts that have been presented so far in the course and your own research relevant to the scenario.
Using the rules for distinguishing between employee and independent contractor, discuss whether Joan’s designation as an independent contractor was correct, and justify your designation by citing laws and federal regulations.
Your instructor will provide feedback on the first draft for you to review and incorporate into the Benchmark – Employee vs. Independent Contractor assignment, due in Topic 7.
Prepare this assignment according to the guidelines found in the APA Style Guide, located in the Student Success, Center. An abstract is not required.
This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.
You are required to submit this assignment to LopesWrite. Refer to the LopesWrite Technical Support articles for assistance.
Sample Answer
TOPIC 6 BUS 340 Employee vs. Independent Contractor
Importance of distinguishing an employee and an independent contractor
When operating a business is essential to differentiate between an employee and an independent contractor. This helps to determine the level of engagements and the incentives that are supposed to be given to the worker. The majority of the startups tend to prefer independent contractors over an employee since they consider them to be cheap. Therefore, a business should classify workers well to save costs and avoid violating federal and state employment laws. For instance, failing to distinguish the worker as an employee or independent contractor accurately leads to severe penalties and fines imposed on the business (Score.org, 2019). The company may be required to pay retroactive insurance premiums, other penalties, and wages. Additional charges and fines result in increased operating costs in the business. Thus to avoid these consequences, it is ideal for any operating business to properly engage the worker as either an employee or an independent contractor.
Factors of Determining Employee Classification
The Madrid and Berne accounting firm outsources the services of an independent contractor. It hires Joan Newman’s business services to provide bookkeeping services for its clients. However, an employer must understand the differences between an employee and an independent contractor. Employers need to understand employee classification, and the rules that distinguish independent contractors and employee (U.S. Department of Health and Human Services,2018) Most of the employers opts to hire employee over an independent contractor because of the liability. Federal and state laws provide criteria that can be used to distinguish employees and independent contractors. Various tests are used to distinguish employees and independent contractors. Some of the tests include the right to control test, economic realities tests, and the hybrid test. However, the right of control test, also known as common laws, is the most utilized by the IRS and other agencies to classify workers. The common law uses three categories; behavior towards the employer, financial arrangements, and relationship with the worker to differentiate between an employee and an independent contractor (IRS. 2019). An employer controls the behavior of employees, such as set working hours, provision of tools and equipment, training, monitor performance, and take disciplinary actions. An independent contractor, on the contrary, works without the influence of the employer and utilizes its tools and equipment. An Independent contractor receives fixed payment after completion of the service in the name of the business while an employee is salaried, receives a commission, and other incentives like insurance, pension, etc. (Score.org, 2019). The relationship between an employee and employer is long term, while the relationship between an employer and an independent contractor is temporary.
Justification of Joan Case Scenario
According to the common laws that are widely used by the IRS and other agencies, Joan is more of an employee than an independent contractor (IRS. 2019). This is because she does not work independently, and Madrid and Berne Company make decisions. Joan has office space and uses tools and equipment that are provided by the company. Her payment is not after completion of the service but weekly based on a commission of the work she does. Her works if first reviewed by the company and sent back for amendments before it is delivered to the clients. Thus her performance is monitored by the company. Therefore, Joan is an employee according to the law, and the company wrongly misclassified her as an independent contractor. In the court, fines and penalties may be imposed on the company.
Conclusion
Any company that is seeking to seek the services of an employee or an independent contractor, they should review the federal and state laws. This will ensure that severe fines and penalties are not imposed in the company affecting its operations. The common laws help to classify a worker as an employee or an independent contractor. Instances whereby the company has control of behavior, finance, and long term relationship, then the worker is an employee as it is in the case of Joan.
