Financial Control Does your business have a right to direct or control the financial and business aspects of the contractor’s job? • How is the contractor paid and how regularly — monthly, weekly or fortnightly? • Is the contractor eligible for reimbursements or unreimbursed business expenses? • Does the contractor have access to any of the company’s resources or just resources supplied by the contractor? • Does the contractor pay for their own health insurance, liability insurance and other insurance? • Does the contractor have other customers? • Can the contractor realize a profit or incur a loss? Relationship of the Parties • Does the contractor receive employee-type benefits like: fringe benefits, insurance, a pension plan, paid sick days and vacation leave? • Does the contractor offer these specific services or are they catch-all labor for your company? • Is there a written or oral agreement describing the intended relationship? • Is there an invoice for every completed job or project? • How permanent is the relationship? • Are the contractor’s services a key aspect of the company’s regular business? For more information about the IRS’s Three-Factor Test, read Publication 15-A by scanning the QR code. https://www.irs.gov/pub/irs-pdf/p15a.pdf Colorado Test Under Colorado Law, an individual is presumed to be in covered employment unless and until it is shown that the individual is free from control and direction in the performance of services, both under contract and in fact, and that the individual is customarily engaged in an independent trade related to the work performed. The presumption shifts to independent contractor status if there is an Independent Contractor Agreement that includes provisions to demonstrate that the contractor is not an employee. However, the contract must include statutory disclosures and cover the general aspects described in the IRS test above. For more information about the Colorado Test for independent contractors, scan the QR code. https://cdle.colorado.gov/independent-contractors Best Practices A good independent contractor agreement will: • Define the contractor’s tasks, compensation and the time frame for completion. • Provide the framework for maintaining the contractor’s independent business in accordance with Colorado and IRS provisions. See C.R.S. §§ 8-4-202(2)(b)(II) and 8-70-115(1)(c). • Include a disclosure (in bold/large font) that the contractor is responsible for paying federal and state income taxes on their earnings and will not receive any benefits from the company, such as worker’s comp or unemployment insurance. • Be notarized. • Address issues of insurance, lien waivers, confidentiality, non-solicitation, adherence to GC or owner safety protocols and contract drawings, dispute resolution, reimbursements/expenses, drug and site security policies, and intellectual property. The use of a well-drafted independent contractor agreement is appropriate for many subcontractor relationships as well as 1099 contract labor. Once your company has a solid agreement ready for use, maintaining and justifying the independent contractor relationship becomes easier for your administrative and site staff to manage with confidence. John Zakhem is a partner in the Cherry Creek law firm of Campbell Killin Brittan & Ray LLC and chairs its construction law and government affairs practice groups. As your ABC Rocky Mountain legal counsel, we welcome your questions about this or any other legal matter at any time. Contact John at (303) 394-7204 or jzakhem@ckbrlaw.com. 20
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