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Employer Obligations When Hiring Independent Contractors in Ohio
It's not uncommon for Ohio businesses to hire independent contractors to work on projects, offer consulting, or to supplement their workforce without having to bring on a full-time employee. This is an arrangement that offers a lot of flexibility for both sides, but it also means some specific legal responsibilities for the employer.
The Fair Labor Standards Act has defined the differences between a full-time employee and an independent contractor, and misclassifying an employee as an independent contractor can lead to legal and financial consequences. These include tax penalties, wage claims, and workers' compensation disputes.
Whether you own a business or you believe that you have been improperly classified as an independent contractor, understanding an employers obligations is extremely important. The independent contractor relationship with a company has different rules than a traditional employment relationship, and this is something that everyone should understand.
Keep reading to learn more about employer obligations when hiring independent contractors in Ohio.
What Is an Independent Contractor According to the Fair Labor Standards Act?
An independent contractor is a person who performs work for another person or a business while keeping control of how the work is completed. Generally they have specialized skills but no employer/employee relationship exists.
In many cases, independent contractors:
Set their own schedules
Use their own tools or equipment
Work for multiple clients
Control how services are performed
Operate as independent businesses
Do not pay taxes like full-time or part-time employees do.
Though these things are typical of independent contractors, Determining independent contractor status shouldn't rely on all of these things.
Why Worker Classification Matters
Employee vs independent contractor status matters for a number of legal reasons.
If the worker is an employee, they may be entitled to:
Workers' compensation coverage
Unemployment benefits
Minimum wage protections
Overtime pay
Certain employment law protections
Employer payroll tax contributions
Independent contractors, on the other hand, are responsible for paying their own federal employment taxes, social security taxes, insurance, medicare taxes, and other costs.
Because of these differences, employers cannot simply choose the classification that is less expensive.
How Worker Classification Is Determined (Employee or Independent Contractor)
There are several factors that should be considered when determining if someone is an employee or an independent contract. Some of the most common things to consider are:
Who controls how the work is performed
Whether the worker supplies their own equipment
Whether the worker can accept jobs from other clients
How the worker is paid
Whether the relationship is ongoing
The level of supervision involved
Whether the work performed is central to the business
The more control an employer has over the worker's daily activities, the more likely it is that the person has employee status and not independent contractor status.
If an employment relationship exists between a worker and an employer, the Internal Revenue Service requires them to pay employment taxes. There are also several other factors that come into play.
Employer Responsibilities Before Hiring an Independent Contractor
Before bringing on an independent contractor, employers should carefully evaluate whether the position actually qualifies for independent contractor status. Larrimer & Larrimer can also advise on common mistakes if you’re injured off-site.
Important steps include:
Reviewing the nature of the work
Determining the level of supervision required
Preparing a written independent contractor agreement
Verifying the contractor's business information
Confirming tax reporting requirements
A written agreement is helpful, but it does not override the actual working relationship. If the facts show an employer-employee relationship, the contract alone will not prevent misclassification.
Workers' Compensation Considerations
One of the biggest differences between employees and independent contractors involves workers' compensation coverage.
In Ohio, employers generally must provide workers' compensation coverage for employees. Independent contractors, however, are typically responsible for obtaining their own protection if they choose to do so.
Problems arise when a worker classified as an independent contractor is actually functioning as an employee under the law.
If an improperly classified worker is injured on the job, disputes may develop over:
Eligibility for workers' compensation benefits
Responsibility for medical expenses
Lost wage benefits
Employer liability
These cases often require a careful review of the actual working relationship.
Tax Obligations
Employers have different tax responsibilities depending on whether a worker is classified as an employee or an independent contractor.
For employees, based on federal employment laws, businesses generally must:
Withhold income taxes
Pay certain payroll taxes
Report wages to government agencies
Independent contractors are generally responsible for paying their own income and self-employment taxes. Such workers must also pay for their own health insurance, and they aren't protected by things such as the Family and Medical Leave Act or the Civil Rights Act.
Misclassification can result in audits, back taxes, interest, and financial penalties. For more information, a great workers comp lawyer in Columbus may be able to help.
Wage and Hour Laws
Employees are generally protected by federal and state wage laws.
These protections may include:
Minimum wage requirements
Overtime compensation
Recordkeeping requirements
Independent contractors are typically paid according to the terms of their contract and are generally not entitled to overtime or minimum wage protections.
Improper classification can expose employers to claims for unpaid wages and overtime.
Workplace Safety Responsibilities
Even when working with independent contractors, employers still have important safety responsibilities.
Businesses should:
Maintain reasonably safe work environments
Address known hazards
Coordinate with contractors when multiple companies are working together
Although independent contractors may control how they perform their work, employers should not ignore dangerous conditions that could lead to preventable injuries.
Maintaining safe workplaces benefits everyone involved and may reduce the risk of accidents and legal disputes.
Common Industries That Use Independent Contractors
Independent contractors are frequently used across many industries.
Examples include:
Construction
Trucking
Information technology
Marketing
Healthcare consulting
Real estate
Delivery services
Home improvement
Professional consulting
While independent contractors are common in these fields, businesses must still ensure workers are properly classified based on the nature of the relationship rather than industry custom.
Consequences of Misclassifying Workers
Improperly classifying employees as independent contractors can have significant consequences.
Potential issues include:
Workers' compensation disputes
Wage and overtime claims
Tax liability
Government investigations
Civil penalties
Interest on unpaid taxes
Employee benefit disputes
Litigation costs
Employers may also face claims from multiple workers if improper classification affects an entire group of employees.
Taking time to classify workers correctly at the beginning of the relationship is often far less expensive than defending a misclassification claim later.
What Should Workers Do If They Believe They Were Misclassified?
Workers who believe they have been improperly classified should not assume the label in their contract determines their legal rights.
Instead, they should consider:
Reviewing their job duties
Documenting the level of supervision they receive
Keeping copies of contracts and communications
Maintaining records of hours worked
Consulting an attorney familiar with Ohio employment and workers' compensation law
In some situations, workers who were treated as independent contractors may still qualify for protections typically provided to employees.
How an Attorney Can Help
Classification disputes often involve detailed legal and factual questions. An experienced attorney can evaluate the working relationship, review contracts, analyze applicable Ohio and federal laws, and determine whether a worker has been properly classified.
Legal representation may also help when disputes arise involving:
Workers' compensation eligibility
Wage claims
Employer liability
Benefit entitlement
Appeals of denied claims
Early legal guidance can help both employers and workers understand their rights and obligations before a dispute becomes more complicated. It can also help if questioning What to do if your benefits are terminated early?
Protecting Employers and Workers Through Proper Classification
Hiring independent contractors can provide valuable flexibility for businesses, but it also creates important legal responsibilities. Employers should carefully evaluate each working relationship, comply with applicable tax and employment laws, and avoid relying solely on job titles or written agreements when determining worker classification.
For workers, understanding the difference between an employee and an independent contractor can make a significant difference after a workplace injury or employment dispute. If you believe you were misclassified or are facing challenges involving workers' compensation benefits, it is important to understand your legal options.
At Larrimer & Larrimer, employees in Columbus and across Ohio have been assisted for decades. If you have questions about worker classification, workers' compensation eligibility, or your rights after a workplace injury, contact our office today to schedule a consultation and learn how we may be able to help.
