Independent Contractor/Employee

Businesses are often confronted with determining whether an individual they hire is an independent contractor or their employee. While businesses generally prefer to hire individuals as independent contractors, misclassifying an employee as an independent contractor can result in the employer being liable for significant back taxes.

Pursuant to C.R.S. 8-70-115(1)(b), services performed by a worker for another is considered “employment” for unemployment tax liability purposes, unless the employer proves both that the individual “is free from control and direction in the performance of the service” and the individual “is customarily engaged in an independent trade, occupation, profession, or business related to the service performed” In order to protect themselves, businesses often have contractors sign Independent Contractor Agreements.

Recent Supreme Court decisions determined that a contractor’s outside employment should no longer be dispositive of whether a contractor is an employee/independent contractor. Instead, a court must look at the totality of the circumstances surrounding one’s employment when making this determination. This distinction, in addition to the appropriate language to include in an independent contractor agreement, is important to be aware of if you hire outside contractors.