If you or your business are considering using independent contractors and creating agreements for these relationships, you must be certain you are properly classifying your employees as such and not violating any state laws with regard to these employees. An Executive Order was issued in 2015 by former North Carolina Governor Pat McCrory that addresses this classification of employees and how to properly identify independent contractors. This Executive Order created the Employee Classification Section of the North Carolina Industrial Commission, and this particular entity serves the purpose of preventing unethical business practices that attempt to undermine North Carolina laws. Expanding upon previous efforts made by the state of North Carolina and the United States Department of Labor, the Employee Classification Section attempts to target the misclassification of employees as independent contractors.

In order to determine an individual’s status as an employee versus an independent contractor, this regulatory entity will consider the following factors:

(1) Is the work being conducted an integral part of the employer’s business? If so, the individual is likely an employee.

(2) Does the individual’s managerial skills affect their opportunity for profit or loss? If not, the individual is likely classified as an employee.

(3) How does the individual’s relative investment compare to the employer’s investment? If the individual is not making an investment, or if they are, there is little risk in doing so, the individual should be classified as an employee.

(4) Does the work require skills involving business knowledge, judgment and initiative, rather than technical skills? If not, the individual should be classified as an employee.

(5) What is the relationship between the worker and the employer like? Is it more long term or indefinite, or shorter in duration? The longer term of the relationship, the more likely the worker will be classified as an employee.

(6) What is the nature and degree of employer control over this individual? If the employer does not have meaningful control over the work consistent with conducting his or her business, the individual is likely classified as an employee.

Be certain that if your business uses independent contractors, you have examined the factors above to see how regulators would classify these workers. Otherwise, you are exposing your business to financial liabilities, like penalties to provide worker’s compensation coverages, penalties and back wages to compensate for wages and overtime not paid, and more.

 

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