Employees vs. Independent Contractors in Louisiana

What Louisiana small business topic do we get the most questions on here at Sheppard Law? Whether someone is an employee or an independent contractor. We get so many questions on the topic that we recorded and distributed a free webinar on it on June 30, 2021, aptly titled, you guessed it: Employees vs. Independent Contractors.

Warning: calling someone an employee or independent contractor even in a contract doesn’t make it true

Wait, even if a Louisiana contract says someone is an independent contractor, a court or the IRS can say otherwise?

So How Do I Know If Someone Is An Employee or Independent Contractor?

In Louisiana you're assumed to be an employee unless and until proven otherwise (unless you're working on your own home).

Lucky for us, the IRS, Federal Standards Labor Act via the Department of Labor, and Louisiana courts have laid out a road map in figuring this out. There are a lot of factors at play but the overarching thing to remember as a Slidell business owner or Slidell independent contractor is that the amount on control the person paying the worker/service provider is what matters.

Three types of Control factors the courts look at:

  1. Behavioral Factors
  2. Financial Factors
  3. Relationship Factors

Louisiana Supreme Court test for an independent contractor:

  • Valid contract;
  • Work is of an independent nature (contractor has non exclusive means to accomplish it);
  • Contract calls for specific piecework as a unit to be done according to the independent contractor's own methods, without being subject to the control and direction of the principal, except as to the result of the services to be rendered;
  • Specific price listed; and
  • Duration of the work is for a specific time and not subject to termination or discontinuance at the will of either side without a corresponding liability for its breach.

The court will also look at how the person who was hired was selected, how they are paid, dismissal options, and control factors. None of the factors alone are determinative. Rather, the court looks at them all together ("totality of circumstances"). Note that under a new case called Pilet (4th Circuit), manual labor, even if an independent contractor, CAN be considered as falling under Worker's Compensation, meaning you better be paying on that if you have folks doing manual labor!

Behavioral Factors

The IRS says that a worker is an employee when the business has the right to direct and control the work performed by the worker, even if that right is not exercised. That is so important to remember-- you don't ACTUALLY have to tell the person doing the work these things. It's the ability to be able to (psst: this is why a written agreement of obligations and responsibilities is so important!)

  • Type of instructions given
  • When and where to report to work
  • What equipment or tools to use
  • Where to buy supplies
  • Degree of instruction
  • Evaluations (leans toward an employee classification UNLESS it's meant to measure just the end result)
  • On the job training (leans to an employee), but arguments can be made for independent contractors so long as written in an agreement

Financial Factors

This factor isn't rocket science. Does the hiring business have the right to direct or control the financial and business aspects of the worker's job?

  • Who bought the equipment or supplies being used to perform the work?
  • Opportunity for profit or loss
  • Can the person seek out other business opportunities
  • Unreimbursed expenses (reimbursed leans to employee BUT there is wiggle room for independent contractors where it's industry standard or there is a clause in the written agreement allowing for it)
  • Method of payment: is it regular pay schedule, at the end of a project, flat fee, or commission?

Relationship Factors

This is a pretty big factor and it hinges on how the worker and the business who hired him/her/it perceives their relationship. Leaves some room for interpretation there doesn't it?

  • Written contracts or agreements that lays out the type of relationship, responsibilities, and obligations helps distinguish.
  • If the business is giving the worker benefits like paid time off, sick leave, vacation time, insurance, pension plans, health insurance then it may be considered employees
  • Length of the relationship or duration. Is it a permanent relationship with no end? Does it end upon completion of a project?
  • Are the services being provided to the business a key activity to the business?

That face your Slidell business lawyer makes when she hears someone say, "I own a Slidell small business. I don't need to worry about this."

Why Does It Matter How Someone Is Classified?

Sit down sweet summer child and let me tell you a story. In a nutshell, intentional misclassification will get you and your organization in a whole heap of legal trouble and the Internal Revenue Service will be knocking on your door.

  • Lawsuits
  • Worker's Compensation: if someone is an employee, you need to be paying Worker's Compensation taxes and get insurance. If they are a manual laborer you need it too.
  • Unemployment Issues
  • Indemnity, i.e., if someone gets sued in a lawsuit and forced to pay damages will you have to pay them back?
  • Tax ramifications
  • Public relations nightmares

Intentional Misclassifications Can Get You Jail Time

Jail Time - Amber, seriously? YEP. You can see it for yourself at Louisiana Employment Security Law R.S. 23:1711 (G).

If you intentionally misclassify a worker you can get up to 90 days in jail in Louisiana. You can also be fined $500 per worker for EACH misclassification instance. Your organization will also be prohibited from contracting with the state or a political subdivision for three years.

Avoid jail time as a Louisiana small business owner by not intentionally misclassifying a worker. Even Tubbs Club here doesn't look good in stripes.

IRS Guidelines For Classifying Workers

1. Degree of direction of work by employer.

2. Amount of training required to qualify.

3. Degree of integration worker’s duties into business.

4. Must work be done by worker or can worker contract performance to others?

5. Control of assistants.

6. Continuance/permanence of relationship.

7. Control over schedule.

8. Demand for full-time work.

9. On-site requirements.

10. Order and scheduling of work – dictated by worker or employer?

11. Reporting requirements.

12. Method of payment.

13. Compensation for business or travel expenses.

14. Use of tools, instrumentalities, and materials provided by employer.

15. Level of investment in employer operations.

16. Share in gain or loss.

17. Ability to work elsewhere.

18. Availability to work for general public.

19. Control over discharge.

20. Right to terminate

Fair Labor Standards Act (Updated May 2021)

The Department of Labor recently released a final rule on the FLSA and instructed that organizations look at the economic reality of a relationship between two parties to determine whether or not they are independent contractors or employees.

  • 2 core factors for economic dependence are nature and degree of control over work & worker’s opportunity for profit or loss based on initiative or investment
  • 3 other factors when core isn’t dispositive: skill required for work, permanence, is the work integrated unit of production?

So all of those factors are cool but they are looking at the actual practice of the worker and the potential employer-- that is more relevant than what may be contractually or theoretically possible. Now, don't get it twisted: you CAN have a sound agreement/contract in place. Some may construe this update as independent contractor friendly. Why? Well, if you have a written independent contractor agreement that you actually follow in practice, and it is consistent with current and applicable laws, then a business can  minimize misclassification liability.

Unemployment Compensation Guidelines and Factors

If you want to go be a bigger nerd than me, check out Louisiana Revised Statute § 23:1711.1 .

There is a rebuttable presumption of an independent contractor relationship with the contracting party for whom the independent contractor performs work, if an individual or entity controls the performance, methods, or processes used to perform services and meets at least six of the following criteria ……

(a) The individual or entity operates an independent business that provides services for or in connection with the contracting party.

(b) The individual or entity represents the provided services as self-employment available to others, including through the use of a platform application to obtain work opportunities or as a lead generation service.

(c) The individual or entity accepts responsibility for all tax liability associated with payments received from or through the contracting party.

(d) The individual or entity is responsible for obtaining and maintaining any required registration, licenses, or other authorization necessary for the legal performance of the services rendered by him as the contractor.

(e) The individual or entity is not insured under the contracting party’s health insurance or workers’ compensation insurance coverage and is not covered for unemployment insurance benefits.

(f) The individual or entity has the right to accept or decline requests for services by or through the contracting party and is able to perform services for or through other parties or can accept work from and perform work for other businesses and individuals besides the contracting party even if the individual voluntarily chooses not to exercise this right or is temporarily restricted from doing so.

(g) The contracting party has the right to impose quality standards or a deadline for completion of services performed, or both, but the individual or entity determines the days worked and the time periods of work.

(h) The individual or entity furnishes the major tools or items of equipment needed to perform the work.

(i) The individual or entity is paid a fixed or contract rate for the work performed and the contracting party does not pay the individual or entity a salary or wages based on an hourly rate.

(j) The individual or entity is responsible for the majority of expenses incurred in performing the services, unless the expenses are reimbursed under an express provision of a written contract between the parties or the expenses reimbursed are commonly reimbursed under industry practice.

(k) The individual or entity can use assistants as deemed proper for the performance of the work and is directly responsible for supervision and compensation.

So How Can I Protect Myself As A Business Owner or Independent Contractor?

  1. Talk to a licensed attorney and CPA in your state!
  2. Have employee or independent contractor agreements.
  3. Think about how you are already paying folks-- do you need to change it?
  4. Get on IRS forms if you've misclassified someone or yourself.
  5. Insurance policies.
  6. Non-competes, nondisclosures, non-solicitation agreements
  7. Make sure your current practices and SOPs are up to date and how you want them to read.

Have Questions? Let Us Know!

We had our  50 minute presentation on differences between Employees and Independent Contractors available for close to two years for free. The webinar is no longer available for free though we can schedule a consultation with you to discuss your specific issues. Shoot us an email at amber@ambersheppardlaw.com and we will be happy to schedule you.

Learned something, consider leaving a review on our Facebook page. You can type in @SheppardLawLLC in the Facebook Search Bar too.

     
       
     
  • Pre-req:

 Sheppard Law | 5 Common Misconceptions       Louisianians Have About Wills (ambersheppardlaw.com)

     

Sheppard Law | Operating Agreements To       Protect Your Small Business in Louisiana (ambersheppardlaw.com)

     

 

Future In Person Presentations: 

In addition to webinars, Tubbs and I go on the road. We have presented about Mental Health & The Court System to counseling groups, service dogs to elementary schools, family law for the Louisiana State Bar Association Lawyers In Libraries event, and protecting your property with young entrepreneurs. 

Below is a short list of future in person presentations we have coming up. Want us to talk at your business or event? Shoot us a message.

Don't stick your head in the sand or, like Tubbs Club here, in the bushes. Be informed and seek help if you need it!

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