Ask HR: Can a Worker Be Both an Employee and an Independent Contractor?
Just when you think you’ve heard it all, one of your employees stumps you with a question you haven’t heard before. The pros at the HR Support Center really have heard it all—at least, until tomorrow.
Here is a recent question and expert advice from HR On-Demand, one of the features available to HR Support Center subscribers.
Question: We employ a part-time worker who also does occasional contract work for us. Is it okay that we pay this worker as both a W-2 employee and as an independent contractor?
Answer from Jessica, HR Pro:
Typically a worker cannot be both an employee and an independent contractor at the same company.
An employer can certainly have some employees and some independent contractors for different roles, and an employee for one company can perform contract work for another company. It is only in very unusual situations, however, that a person will have one role as an employee and another role as an independent contractor for a single company.
The IRS and the U.S. Department of Labor have specific criteria for determining who is an employee and who may be classified as an independent contractor. These criteria focus on the overall relationship workers have with their employer. Workers who are economically dependent on an employer and look to that employer to tell them how and when the tasks that make up their job are to be done are employees. Workers in business for themselves who retain more control over how the finished product is achieved are independent contractors.
The government is cracking down on misclassification of workers, so you definitely want to make sure you’re classifying this person correctly. Classifying the worker as both employee and contractor can be a red flag for the IRS. When filing taxes, the individual will be reporting wages earned (via a W-2) as well as earnings as a self-employed individual (via a MISC-1099) which may invite an IRS investigation into the actual circumstances.
Your safest course would be to classify and pay this worker entirely as an employee for all the tasks they perform. This way you avoid the risks of misclassification and ensure that the employee receives the appropriate legal protections. However, if the employee has an established outside business, and the contract work the employee is doing for you pertains to this outside business and not to their employment duties, then you may treat the employee as an independent contractor for such work. For example, if you have an employee who works as a bookkeeper for you but also has a side photography business, you may be able to hire them as an independent contractor for the sole purpose of taking company portraits.
Jessica holds a Bachelor of Science (BS) in Communication and a Professional Certificate in Human Resources Management. She is active in many Human Resources organizations and regularly attends continuing education courses to stay abreast of changes that affect the workplace.
Tips from a Paycor Expert: Classifying Independent Contractors
Wage and Hour Division Cracks Down on Employee Misclassification
Don’t Be a Victim: 5 Ways to Avoid Wage and Hour Lawsuits