Independent Contractors Determining Classification: Retirement Issues

        Employee or Independent Contractor?


The Supreme Court has ruled that the common law test also determines whether an individual is considered an employee for the purpose of the Employee Retirement Income Security Act of 1974 (ERISA), stating that it would consider the following in determining if someone is eligible for retirement benefits:

     • Employer rights to control how and with what resources tasks are completed

     • Skills necessary to complete the task

     • Materials used to complete the task

     • Locations at which the work is done

     • Length of the relationship between the company and the individual

     • Employer ability to assign additional tasks to the individual

     • Amount of discretion concerning when and for how long an individual will work

     • Payment methods

     • Employer involvement in hiring and paying assistants

     • Whether tasks are considered part of the individual’s regular business

     • Whether the individual provides services as part of his or her own business

     • Whether employee benefits are allocated to the individual

     • Whether the employer pays taxes on behalf of the individual

Hiring an independent contractor offers employers many advantages. Unlike for traditional employees, employers do not pay taxes on independent contractors’ wages, and are not expected to provide benefits. Employers often save 30 to 40 percent on labor costs by using independent contractors. In addition, as independent contractors are generally hired for a specific period or project, employers have no obligation to rehire them after each contract period or project is complete.