The IRS uses a Questionnaire called the IRS Form SS-8 (Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding) to determine when a particular "worker" is an independent contractor and when the "worker" is an employee.
This Questionnaire has been used by the IRS for decades. One of the key questions on the IRS Form SS-8 is: "Can the relationship be terminated by either party without incurring liability or penalty?"
State unemployment insurance agencies across the United States have their own Questionnaires to determine when workers are independent contractors or employees. In Illinois, the Illinois Department of Employment Security (IDES) asks the question that almost every State asks which is: "Can the firm discharge the worker at any time?"
Another question almost universally asked by State unemployment insurance agencies is: "Can the worker terminate his/her services at any time?"
These questions, state and Federal, have the same legal purpose. The government agency is trying to figure out 1) whether the Company can end the relationship with the worker on a whim without giving any notice, and 2) whether the worker quit without giving any notice of any kind and without incurring any liability.
NO NOTICE INDICATES AN EMPLOYEE: Government agencies reason that if a worker can simply walk off the job (or if a company can fire a worker with no notice whatsoever), then that relationship is the classic employment-at-will relationship, not an independent contractor relationship.
IF NOTICE IS REQUIRED, IT POINTS MORE TO AN INDEPENDENT CONTRACTOR RELATIONSHIP: However, if the company has to give some kind of notice before firing the worker (or if the worker is contractually obligated to give some kind of notice before leaving), then that relationship is closer to an independent contractor relationship.
MAKE SURE INDEPENDENT CONTRACTOR AGREEMENT CONTAINS A NOTICE PROVISION: If a company uses independent contractors, the company should carefully review the Independent Contractor Agreement to see if the Agreement permits the parties to terminate the relationship at will with no notice or if the relationship can only be ended with a specified notice period.
If an Independent Contractor Agreement has a provision under which the independent contractor can quit at any time or the independent contractor relationship can be severed at any time, then that provision weakens independent contractor status.
If an Independent Contractor Agreement has a provision under which the parties must, for example, give one weeks' notice before termination of the independent contractor relationship, then that notice provision strengthens independent contractor status.
MISCONCEPTION: These distinctions confuse many people because it is a commonly held belief (really a misconception) that if a worker is truly "free," he can simply walk away from the job at any time. But the reverse is actually true-it is a stronger independent contractor relationship when the worker is contractually bound to a specified notice period.
To discuss your potential liability in using independent contractors (as well as strategies for reducing your liability in using independent contractors), please contact Attorney Nancy Joerg at Wessels Sherman's St. Charles, Illinois office: 630-377-1554 or email her at [email protected].