South Carolina Court Of Appeals Weighs In On Definition Of 1099 Employees/Independent Contractors
By: Paul Hilton, Paul Hilton Human Resources
Paul Hilton, Paul Hilton Human Resources, www.paulhiltonhr.com
For many years, the IRS, U.S. Department of Labor and the South Carolina Courts have all used different tests to determine who may and who may not be considered as a 1099 employee/independent contractor. On August 9, 2017, in Sellers v. Tech Services, Inc. the South Carolina Court found that “the primary consideration in determining if an employer/employee relationship exists is whether the alleged employer has the right to control the employee in the performance of the work and the manner in which it is done.” The court went on to list the following four factors which would be used to determine the right to control:
- Direct evidence of the right or exercise of control.
- Furnishing of equipment/.
- The method of payment
- The right to fire the individual.
In this case, the individual worked for an HVAC company and was injured in the course of his employment. He subsequently sought Workers Compensation benefits to help cover the costs of his medical bills. The company’s Workers Compensation benefits carrier denied the claim because he was classified as a 1099/independent contractor.
The Court ultimately found that the individual was indeed an employee and not an independent contractor and required the Workers Compensation carrier to cover the claim.
The Court found that:
The Company had the right to control the time, place, and amount of the employee’s work. Independent contractors determine how, when and where to do the work. They are free to work when they choose and to set their own daily or weekly schedule.
The employee wore a company uniform, carried company business cards and otherwise held himself out to be an employee.
The company paid for the costs associated with the employee’s work van. Independent contractors are paid on a job basis and must take care of their own incidental expenses. Independent contractors furnish their own tools, materials and vehicles.
There was no independent contractor agreement in place. Independent contractors offer their services to the general public. This is indicated by having an office, hiring assistants, holding a business license, business telephone listing or advertising in newspapers, magazines or journals. Independent contractors agree to perform specific jobs for prices agreed to in advance per the contract and are paid on a commission or job completion basis.
The Company furnished the employee with the tools and equipment to do HVAC construction/repair. Independent contractors are paid on a job basis and must take care of their own incidental expenses. Independent contractors furnish their own tools, equipment and materials.
The employee received the majority of his income from the Company and only small amounts for plumbing and other jobs for different companies. A continuing or ongoing relationship whereby the individual is paid on an hourly, daily or weekly basis indicates that the individual is an employee and not an independent contractor.
The Company had the right to fire the employee. Independent contractors agree to complete a job per the provisions of a specific contract and are responsible for satisfactory completion or are legally obligated to make good for failure to complete the job. Independent contractors cannot be discharged as long as they produce a result which measures up to the contract’s specifications.
This case once again highlights the pitfalls that employers face when they misclassify workers. It can expose the employer to significant tax liabilities, statutory penalties and monetary damages.
A company’s best defense against the potential expense and aggravation related to federal or state law violations is to proactively review and revise as needed their Human Resources policies, handbooks, employee classifications, hiring procedures, compensation, benefits, training programs, communications tools and other functions. The professionals of PHHRare ready to assist your organization maintain compliance with the latest state and federal mandates.