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Dexter Alcedo

3 Tips for Classifying Independent Contractors

How to avoid employee misclassification fines that could wipe out savings from hiring freelancers.

Summer festival season is upon us, and pretty soon outdoor tents, booths and stages will pop up at venues everywhere. Then, in a matter of days, these structures will come down as quickly as they went up, often thanks to a work force that is as temporary as the events themselves.

Short-term workers are an obvious fit for impermanent events such as fairs and concerts. With online services like Upwork and Fiverr on the rise, access to the on-demand workforce is steadily increasing. In addition, temporary employees offer several benefits to the bottom line, giving employers the ability to better manage wage conversations, fringe benefits and other employer contributions.

However, special event companies must be careful in how they hire and deploy independent contractors. The U.S. Department of Labor is scrutinizing these arrangements, and should catastrophe strike, even well-intentioned companies could be on the hook for back pay, benefits or other liability payouts to improperly classified workers. With the coming of wedding, festival and concert season, now is the time for event hosts to thoroughly audit labor practices and understand how to properly categorize independent contractors.

Here are three tips to properly leverage independent contractors in your workforce:

1.      Understand the contractor’s role in your business needs and goals

If a contractor is providing services integral to the company's business, then those short-term workers are one step closer to being considered employees. For example, if a rigger is hired to set up a stage or wireless microphone system, that work can be considered integral to the business, because without it, the show can’t go on.

Conversely, if the independent contractors are onboard only to manage crowd control at the wet bar, that job is considered non-critical—meaning, the event can theoretically take place without them—and the workers can be safely classified as an independent contractor.

2.     Get a grasp on your and the independent contractor’s investments into the job

Special events professionals must have a solid understanding of what each party is bringing to the table, because it will affect the contractor’s classification. For instance, if a stage builder drives his personal vehicle to a job site but uses the employer’s tools to perform tasks and he is covered by the company’s insurance policies for the duration of the job, he is likely an employee of the company--regardless of how the employer labels him.

Conversely, if another stage builder uses his own tools on the job, purchases needed supplies, and directly hires subcontractors for larger projects, he is more than likely an independent contractor.

3.      Assess whether the independent contractor will apply specialized skills and initiative

What skills will the independent contractor bring, and how much initiative will he take? If the individual is completely independent of the organization in the scope of his work and is able to complete the job with minimal internal instruction, this is a factor that supports classifying him as an independent contractor. Let’s say an electrician is brought in to wire a temporary staging area using his own tools, creates his own schedule, hires his own help, and fills orders at his own discretion. In this case, he is applying his specialized skill with minimal outside direction from the hiring events company.  

On the other hand, the same electrician can be considered an employee if he is simply performing tasks as specified by the events company. Despite the fact he possesses the same knowledge and skills, he falls under the direction of an internal party and thus can’t be considered an independent contractor. In other words, this worker is not making any independent judgments beyond the work that he is doing for a specific job.

In conclusion: Never start a job until you have classified each worker

No job should ever begin until all individuals who are providing services have been properly classified. By considering these three factors, distinguishing independent contractors from employees should be much easier. If you are still having trouble arriving at a conclusion, you can always turn to your insurance provider for help. Insurance companies are an essential part of the process—once everyone’s employment status has been determined, each party will need to be appropriately insured, either through an employer’s plan or out of pocket if you’re independent. So, leverage the insurance company’s experience to be sure you are making the right decisions.

This article is for informational purposes only and not for the purpose of providing legal advice. Consult a qualified attorney for assistance with employee classification and other related matters.

Dexter Alcedo is a program executive for the Live Media program at ProSight Specialty Insurance. He earned his B.S. in Finance from Cal State University Northridge and now has more than 20 years of experience in entertainment insurance. He can be reached at [email protected].

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