The employment relationship is a common legal term in all nations. It implies the relationship between an employee and employer where the employee performs specific tasks for the employer in return for payment. The relationship defines the rights and obligations of both the employee and the employer. However, due to the numerous changes occurring in the world labor market, it has become difficult to classify a person in under the categories of employee, worker or contractor. Various legal concerns are arising from the new forms of working relationships. The primary aim of this study is to explain the legal issues around the employment relationship between an independent contractor and an employer. In the case study, the employer hires an independent contractor and pays her a monthly salary. However, the contractor does not pay her taxes. Moreover, she disappears when the IRS threatens to investigate the employer on the responsibility of the unpaid taxes. The employer faces many legal liabilities due to the uncertain working relationship with the contractor. This paper discusses the critical facts in the case as well as the mistakes committed by the employers when hiring independent contractors.

The most significant fact in this case study is the classification of the worker. The employer hired the worker as an independent contractor. The classification is necessary for defining the obligations and expectations of the worker as well as defining the legal responsibilities of both the worker and the contractor. Also, the employer paid the contractor a monthly salary instead of a flat fee which is the appropriate method of paying independent contractors. Besides, the failure of the contractor to pay their income taxes is a significant fact. Since there is no income tax withheld, the fact is critical for the employer in proving that the contractor is responsible for paying their taxes. Also, the disappearance of the contractor in the event of tax evasion by the IRS is also an important fact. It is difficult for the employer to prove the existence of a working relationship between him and the contractor. Moreover, the lack of track for the contractor’s working hours and non-payment of overtime hours worked is another critical fact in the case study.

There are several facts if that could help the employer if they were right. For instance, the employer would not have the problem of tax evasion if he hired the worker as an employee rather than an independent contractor. In an employee-employer working relationship, the employer remits the employees taxes thus minimizing the incidences of unpaid taxes. Moreover, if the worker was present in the organization, it could help the employer in solving the problem of unpaid taxes with the IRS since the worker would take responsibility for the taxes. Also, if the employer kept track of the working hours of the worker, then he would not be in the danger of being prosecuted for failing to pay the contractor their overtime wages.

Despite the events in the case, there are several things the employer should have done to protect himself from legal problems. Firstly, the employer should have properly classified the worker as an independent contractor. The classification includes ensuring that he specifies the terms of the contract. Besides, the agreement states the degree of control the contractor has as on how and when the work is done. Granting the contractor more power would protect the employer against misclassification charges of the worker. Secondly, the employer should have requested the independent contractor to report and demand compensation for extra hours spend on the premises. Therefore, the employer would protect himself against claims of non-payment of overtime hours since the contractor did not report the number of extra hours she spends on the premises.

Misclassification of the worker could hurt the case significantly. It highly possible that the employer hired the worker as an employee but misclassified her as an independent contractor. The incidence could imply that the employer was responsible for remitting taxes on the worker’s earnings. Besides, if the worker worked overtime hours but did not receive remuneration for the extra hours, it could expose the employer to litigation. However, this can only happen if the worker reports the non-payment to the IRS. Moreover, if the worker did not pay her taxes during the employment period, it could also hurt the case. Non-payment of taxes would indicate the failure of the employer to ensure that his workers remit the necessary taxes.

Employers make several common mistakes when they hire independent contractors which often lead to liability for unemployment taxes, violation of workers’ compensation laws among other legal issues. Primarily, employers do not consider all aspects of the working relationship such as behavioral and financial aspects. The behavioral aspect includes defining the independent contractor’s degree of control on how the work is done. Besides, employers often believe that a written contract is the only way of classifying a worker which is not the case. The IRS considers other factors such as responsibilities when conducting work evaluation. Moreover, employers usually define a worker’s significant investment improperly. In the cases where a worker uses tools and materials of relatively high value, then they are independent contractors rather than employees. Therefore, the improper definition of significant investments may result in misclassification of workers.

Furthermore, employers use similar payment methods for both independent contractors and employees. However, independent contractors are paid a flat fee for the tasks they perform. Paying independent contractors a regular wage brings confusion in the liability of unemployment taxes and income taxes. Besides, some employers use employee benefits as the primary determinant of the worker’s classification. In this regard, employees receive sick leaves, health insurance, and pension plans. On the other hand, independent contractors do not accept the benefits. However, some employees decline the benefits. Therefore, declining benefits does not make such workers independent contractors. Treating them as contractors may expose the employer to a litigation condition which is difficult to defend.

The IRS uses behavioral control, the relationship of the parties involved as well as financial control categories to determine the classification of a worker. If an employee classifies an employee as an independent contractor with no reasonable basis, the IRS holds the employer liable for employment taxes. However, in some cases, the employer may have a reasonable basis for treating an employee as an independent contractor. However, apart from being liable to employment taxes, the IRS labels employers who classify employees as independent contractors “tax evader.” The label destroys the reputation of the employer and can cost them significantly. Moreover, the IRS may seek a criminal conviction in the cases where they think the employer intentionally misclassified a worker with the intention of evading taxes and minimizing costs. The conviction leads a one-year jail term for an individual or $500,000 as fines for a corporation.

The misclassification of workers as employees or independent contractors draw the attention of several other organizations apart from the IRS. For instance, the international labor organization ILO is also interested in the misclassification mistakes of employers. Additionally, the labor court is also a significant stakeholder in the litigation process of misclassification cases. Therefore, the labor court is interested in such cases. The court has the responsibilities of determining the penalties on employers who intentionally misclassify employees as independent contractors. Apart from a fine for corporations and fines on individual employers, other penalties include back taxes. The court a back tax of about 41% of the worker’s income. Moreover, the Department of Labor in the United States levies fines for improper recordkeeping on the employers and requires them to pay back wages for up to three years.

In conclusion, the case study presents the problem of misclassifying workers and the penalties as well as the common mistakes employers commit when hiring independent contractors. The essential facts in the case include the classification of the worker as an independent contractor, payment of monthly salaries as well as the employer’s failure to capture the working hours. The misclassification of the worker and the failure of the employer to reward the worker on overtime hours worked could hurt the case significantly. Besides, the effects of employers mistakes such as misclassification when hiring independent contractors result in labor law issues. When found guilty, an employer may be jailed for a period of up to one year or fines 500,000 USD. However, employers can avoid litigation by being keen when recruiting workers to prevent the incidences of misclassification.