Many small businesses prefer to start their expansion by using independent contractors (such as Polaris Law Group) rather than hiring internal employees (like an employed in-house counsel). However, under Colorado law, an individual is presumed to be an employee unless there is a written agreement that the individual is an independent contractor, and the nature of the relationship between the contractor and the business looks like an independent contractor arrangement based on the factors. Below are the key factors considered. This is not an inclusive list and may be missing specifics depending on the circumstances; additionally, in some circumstances, some factors will be given greater weight than others.
- The Independent Contract has their own business entity that is registered with the Colorado Secretary of State’s Office and has received an EIN number from the IRS.
- The Independent Contract will receive all checks or other payment methods payable to the business entity or the business entity’s DBA, not the individual.
- The Independent Contractor may be provided plans and specifications regarding the work, but the hiring entity cannot oversee the actual work or dictate how the work will be performed.
- The Independent Contractor may work for other companies simultaneously, unless the exclusive contract is for a very finite, specific period of time.
- The Independent Contractor will receive a fixed or contract rate.
- The entity hiring the Independent Contractor cannot terminate the work unless there is a violation of the written agreement.
- The Independent Contractor will be responsible for payment of all federal, state, and local taxes plus any payroll tax.
- The Independent Contractor will not be eligible for any unemployment compensation.
- The Independent Contractor will set their own hours of working within the requirements of the Independent Contractor’s agreement. The Independent Contractor can be required to meet specific deadlines or to meet with third-parties or clients only during regular business hours.
- The Independent Contractor will be provided basic supplies, but the Independent Contractor is responsible for their own specific supplies for their services.
- The Independent Contractor is separate and distinct entity for the company that has hired it to perform services. Neither entity is allowed to bind the other entity to contractual agreements.
Always make sure to have your independent contractor agreements reviewed by attorneys and to review these requirements with your independent contractors.
