Can I Pay Insependent Contractors for Bringing in New Clients for a Web Hosting Business?
Full Question:
Answer:
The following is general information regarding independent contractors:
An independent contractor is a person who performs work or services for another person or company, for pay, but who is not employed by that person or company. The term itself is intended to convey the status of the individual as an independent worker who is a party to a contract for specific work (rather than a contract for employment), the performance of which is not controlled or supervised by the party requesting the service or work. As in any contract, there is no control of the physical conduct of the worker; only the end result (i.e., the fruit of the worker's labor) is accepted or rejected. The distinction between employee and independent contractor is crucial in determining the application of several important federal and state laws, including those involving wages and withholding taxes, as well as such entitlements as eligibility for workers' compensation. Generally, when disputed, there is no single, dispositive test for government agencies to determine whether workers are independent contractors to a company, or employees thereof. Moreover, different criteria and legal tests are used for determining worker status, because each government agency is concerned with worker classification for a different reason. Accordingly, agencies may use their own independent worker classification criteria, without regard to what other agencies have done.
Title VII [42 USC § 2000(e)] defines an "employer" as a person or entity who employs 15 or more employees in 20 or more calendar weeks in the current or preceding calendar year. The term "employee" is only loosely defined as "an individual employed by an employer." Importantly, Title VII prohibits discrimination by an employer against any individual "with respect to terms, conditions, and privileges of employment." Once a company or person reaches the status of "employer" under the statute, there may be liability exposure for claims that independent contractors were essentially functioning as employees and therefore entitled to the same privileges and conditions as employees. What is meant by the statutory provision is that an employer cannot choose to speciously label one worker as an employee and another as an independent contractor, for the purpose of paying one less than the other or providing less benefit coverage for one than the other, or otherwise illegally discriminate between them. If two workers are substantially performing the same work, for purposes of Title VII claims of discrimination, both will be deemed employees and the employer will be required to treat them equally in "terms, conditions, and privileges of employment." In adjudicating such claims and controversies, courts often refer to what is known as the "economic realities" of the employment relationship to make a determination of status as applied to the facts presented. In applying an "economics reality test" to the situation before it, a court will review the employment relationship of the parties to see if the worker in question is actually functioning as an employee, because the worker performs most of his work for the employer and derives most of his income from the employer. Conversely, if the worker held himself and his services out to several companies, and derived his overall income from several of them, he might be more appropriately deemed an independent contractor. Still, other courts find the economic realities test too superficial, and instead look to the common law for guidance. Under the common law standard, the primary emphasis is on a review of the degree of control and autonomy the worker has over his hours, methods used to complete the work, and materials used for the work. If the employer only looks to the end result, the worker is more likely an independent contractor.
Likewise, claims also may be brought under the Equal Pay Act [29 USC § 206(d)], which amends the Fair Labor Standards Act (FLSA). Generally, for wage/hour claims, the "economic realities test" in used in determining the true status of the worker. An example of this type of claim might involve an independent contractor who is to be paid a contract amount when the work is completed, but in reality, that amount is less than the minimum wage or does not account for applicable overtime pay. If the worker is deemed to be actually functioning as an employee, the employer may be liable for monetary damages.
One of the most important considerations in determining whether someone is an independent contractor or employee is the degree of control exercised by the company over the work of the workers. An employer has the right to control an employee. It is important to determine whether the company had the right to direct and control the workers not only as to the results desired, but also as to the details, manner and means by which the results were accomplished. If the company had the right to supervise and control such details of the work peformed, and the manner and means by which the results were to be accomplished, an employer-employee relationship would be indicated. On the other hand, the absence of supervision and control by the company would support a finding that the workers were independent contractors and not employees. Whether or not such control was exercised is not the determining factor, it is the right to control which is key.
Another factor to be considered is the connection and regularity of business between the independent contractor and the hiring party. Important factors to be considered are separate advertising, procurement of licensing, maintenance of a place of business, and supplying of tools and equipment by the independent contractor. If the service rendered is to be completed by a certain time, as opposed to an indefinite time period, a finding of an independent contractor status is more likely.
Generally, it is legal to pay someone for bringing in new clients to a business. It will be a matter of negotiation and any agreement will be covered by contract law principles. A sales commission is a sum of money paid to an employee contingent upon an event, usually selling a certain amount of goods or services. Employers sometimes use sales commissions as incentives to increase worker productivity. A commission may be paid in addition to a salary or instead of a salary. The Fair Labor Standards Act (FLSA) does not require the payment of commissions.
In the case of a breach of an express contract provision, the employee is entitled to receive compensation for damages caused by the employer’s failure to fulfill its obligations under the contract. An employee may also be entitled to receive damages in connection with a violation of his or her implied rights. Recovery of damages in the form of commissions earned but not paid, in connection with work performed prior to the separation, for example, are generally recoverable.
