Hiring practices; Employees vs Independent Contractors; Wage & Hour Issues; Discrimination Issues; Whistleblower protection; Best practices Mark Heusel is a Member of Dickinson Wright, PLLC’s Ann Arbor office. Dickinson Wright is a international law firm with offices in Michigan, Washington D.C., Nashville, Phoenix, Las Vegas and Toronto. Mr. Heusel works with companies in a variety of circumstances in the commercial litigation and employment law areas. He has substantial experience in advising clients on a host of employment related issues, including litigation avoidance, human resource issues, discrimination and wrongful termination litigation, non-compete and trade secret matters, and business practices. He is also a frequent lecturer and author on these issues and when necessary, a vigorous litigator.

1. INDEPENDENT CONTRACTORS
GREAT ALTERNATIVE OR INVITATION FOR TROUBLE
By Mark V. Heusel
mheusel@dickinsonwright.com

2. EMPLOYEE vs INDEPENDENT CONTRACTOR
Have you ever felt like this?
You’ve heard the hype, do you know what’s right?

3. Why you should care
Benefits of an Independent Contractor
 Flexibility
 Less administration
 No payroll taxes
 No benefits
 Avoid workers comp, unemployment, and OT
 Less legal exposure
 Lower overhead

4. Why you should care
Benefits of an Employee
 Control
 Loyalty from Eee
 Commitment (time)
 Worker appeal
 Protection of
your assets (trade-off)

5. who cares?
EMPLOYEE MISCLASSIFICATION:
Employee vs Independent Contractor

6. who else is watching?
Interagency Task Force on Employee Misclassification
“The task force has been directed to study the problem of employee misclassification, develop
ways of improving communication and public awareness of the problem, coordinate and
strengthen enforcement mechanisms in the state and other jurisdictions and make
recommendations for legislative action where needed.
Misclassification most commonly occurs when an employer hires a worker and improperly
classifies the worker as an “independent contractor,” rather than as an “employee.” The
practice is harmful to employers, workers and taxpayers. Employee misclassification creates an
unfair competitive advantage for employers, prevents misclassified employees from receiving
certain benefits and causes government to lose out on important tax revenues.
As the Department of Treasury noted, “The understated taxes of these employers and
employees means less revenue to the state and less funds for K-12 education, local units of
government, health and social programs, colleges, and police and fire protection.”’

7. What can trigger an investigation?
 Injury to a worker - worker’s compensation
 The end of a job assignment - unemployment
 Disgruntled Worker - potential wage and hour claim
 Random Audit - industry targeted
 Experience with past contractors

8. misclassification hazards
payment of Eee’s worker’s comp
taxes sick leave/time off
IRS penalties/interest medical insurance
wage/hour penalties pension/401K
unpaid overtime
back benefits
paid vacation

9. The Rules
1) The IRS’s Common Law Test
- Payroll taxes, social security,
medicare, and unemployment
(FUTA)
2) The State of Michigan's Test
- Unemployment, worker’s
compensation

10. The IRS’s Common Law Rule
Evidence of the degree of control and independence
1) Behavioral control:
- Instructions given to the worker. How, when, where to work?
- Training is also important.
2) Financial control:
- Extent of worker’s unreimbursed business expenses
- Extent of worker’s investment
- Extent that worker provides services to others
- How the worker is paid
- Extent worker can realize profit/loss

11. The IRS’s common law rule
3) Type of relationship:
- How do the parties describe their relationship in writing
- Does the worker receive employee-type benefits
- The permanency of the relationship
- Extent to which services performed by the worker are a key
aspect of the regular business of the company.

12. Michigan’s Rule
Look at the economic reality of the relationship:
1) Liability of Eer if relationship terminates at will?
2) Is work performed integral to the Eer’s business?.
3) Does Eee depend on wages for living expenses?
4) Does the Eee furnish equipment and materials?
5) Does Eee hold himself out to the public to perform same
tasks?
6) Is work customarily performed by an independent contractor?
7) Factors of control, payment of wages, maintenance of
discipline, and the right to hire and fire employees.
8) Weighing those factors which will most favorably effectuate
the purposes of the Michigan Employment Security Act.

13. Keys to success
 Assess each situation on its own merits
 Written Agreement. Written Agreement. Written Agreement.
 What would you expect from someone painting your house?
 insurance
 invoices
 autonomy

14. Disclaimer
This slide presentation is informational only and was prepared to
summarize relevant issues related to independent contractors. It
does not constitute legal or professional advice. You are
encouraged to consult with a Dickinson Wright attorney if you have
specific questions relating to any of the topics covered in this
presentation.