1099 vs. Employee Independent Contractor Agreement Guidelines for Construction Subs BY JOHN ZAKHEM, PARTNER CAMPBELL KILLIN BRITTAN & RAY LLC Like any other industry, builders regularly classify contract labor as either employees or independent contractors (1099 workers). Generally, if the contract labor is going to work under your company’s direct control/management, there’s no question that the worker should be classified as an employee, and thereby entitled to minimum wage, workers’ comp insurance, unemployment insurance, tax withholdings, etc. However, it is often economically beneficial for the business relationship to seek labor from an independent contractor — someone who does not need to be directly supervised, who can autonomously tackle discreet construction activities on your behalf — and, therefore, your company has no legal risk or financial responsibility beyond the contract value of the labor. You may be thinking, “We always hire a company. We never hire individuals, so this doesn’t matter for us.” You could be wrong. Unless you can guarantee that the “company” you are hiring is in good legal standing and following all these rules, you may end up on the wrong side of litigation if one of their workers on your job is injured, terminated or brings a wage claim. Understanding Colorado and IRS independent contractor guidelines can save you some headaches and money, particularly in the recently proactive regulatory environment at Colorado’s Department of Labor, which has been targeting the construction industry for wage claim investigations — misclassification comes with huge penalties. When it comes to independent contractor vs. employee, what are the differences? There are two legal frameworks that must be followed, at the federal and state level. The IRS’s Three-Factor Test Behavioral Control Does your business have a right to direct and control how the work is done, through instructions, training or other means? • Are there regular reports to a manager regarding the contractor’s work? • Is the contractor’s performance regularly evaluated? • Is the contractor provided with occasional training related to the job? • Is the contractor free to work anytime and anywhere convenient? • Is the contractor tied to the company’s rules and regulations? • Does the contractor have a fixed work schedule? CONSTRUCTIOn ADVOCATE 19
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