In today's Freedom Friday blog and email newsletter, I want to continue to talk about topics that relate to the construction industry.  I get a lot of inquiries about construction disputes, and also how to prevent them.  One area that I get asked about a lot is independent contractors, and how to avoid problems with them.  In today's Freedom Friday blog and email newsletter, I'm answering the question, “How can I manage risks with independent contractors?”

An independent contractor is a person or entity that provides services to a client or a business entity under the terms of a contract or an agreement, and more importantly, is defined by law to not be an employee of a company.  Sometimes a client will refer to such a person or entity as a “1099 employee,” but that is a misnomer, because an employee is given a W-2, and an independent contractor is given a 1099 for tax purposes.  Unlike employees, independent contractors are usually self-employed (if you're dealing with an individual) and are usually responsible for managing their own work schedules, equipment, and taxes.  The biggest distinction is the level and control they exercise over their work.  The IRS and Department of Labor have tests that can determine if a person is an employee or has been incorrectly determined to be an independent contractor.  If a person is incorrectly determined to be an employee or independent contractor, then that incorrect determination can become a liability for the business.  It's very important to make that determination correctly to avoid tax penalties.

An employer that hires an independent contractor is generally not obligated to guarantee the safe execution of the contractor's work.  However, there is an exception if the employer maintains a degree of control over how the contractor carries out the tasks, leading to potential liability for damages incurred.  Also, a general contractor owes a duty of care to a subcontractor if the general contractor retains actual or contractual control over the means and methods of the subcontractor's work.

In addition, the authority to start or stop work and provide directives on when and where tasks are executed does not inherently imply a duty of care.  Exerting control over the overarching timing and sequence of work does not establish a duty of care, either.  Rather, these elements simply indicate that the general contractor is fulfilling its standard responsibilities.  Further, the presence of a general contractor's safety employee does not, by itself, impose any obligation to intervene to ensure safe work practices by subcontractors.  However, if the safety employee provides detailed instructions on the methods of execution, such may trigger a duty of care.

Thinking about starting a small business?  Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth?  Please contact me at [email protected] to schedule a FREE strategy session.