ISSUES FOR EMPLOYERS*
WHO IS AN EMPLOYEE?
IN GENERAL Many laws affecting the worker/employment relationship will require the business owner to first determine whether an individual who performs services for the business is an “employee” for purposes of the particular law. Business owners who use “independent contractors” may think they do not have employees and, therefore, employment laws do not apply to them. An individual’s status as an independent contractor, however, is not determined by agreement or by what he or she is called; the individual’s status is determined by what he or she does, and their relationship to the business. The relationship between the business and the individual may be that of: • A common law employee. • A statutory employee. • An independent contractor. If the individual is a common law employee, the business by law must obtain workers‘ compensation coverage, withhold FICA (Social Security and Medicare) and income taxes, pay the employer’s share of the FICA tax and pay federal and state unemployment taxes. Fair labor standards laws, occupational safety and health requirements and a variety of other federal and state laws also may apply. If the individual is a statutory employee, the business does not withhold federal or state income tax. The employer should consult with an attorney or other competent tax advisor with respect to withholding Social Security and Medicare taxes and paying unemployment tax. Fair labor standards laws will probably apply. An independent contractor is himself or herself a sole proprietor of a business, and not an employee of the firm who contracts with them. The tax requirements for sole proprietorships are discussed in the Choosing the Form of Business Organization – Tax and Non-Tax Considerations section of this Guide.
*A comprehensive discussion of employment issues is provided in the publication, An Employer’s Guide to Employment Law Issues in Minnesota.
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