Hiring employees can be expensive, and hiring independent contractors on a per-project basis can be a viable alternative. Independent contractors are an excellent way for construction companies to connect with skilled talent without drastically expanding their employee rosters.

In recent years, an increasing number of businesses have hired workers to perform recurring services while classifying them as independent contractors. Companies that hire independent contractors instead of employees can save money on taxes and insurance obligations, but they pass many of those expenses on to the people they hire. Workers may then take legal action if they get hurt on the job or lose a job.

Issues with worker misclassification have forced federal authorities to address the matter. Construction firms may need to revisit agreements with outside professionals to ensure legal compliance in light of these new rules.

Is a worker an employee or an independent contractor?

There have long been disputes about when exactly an employee becomes a self-employed independent contractor and when someone called a contractor is effectively an employee. The Department of Labor recently helped clarify this ongoing employment issue by establishing specific standards for evaluating a worker's status.

The duration of the arrangement, how crucial the services provided are to business operations, the amount of risk involved for the worker and even the control they have over their own job performance can all influence whether the courts and regulatory agencies might view them as an employee or an independent contractor.

Those accused of misclassifying workers could face numerous penalties, including tax consequences. As such, construction companies, in some cases, may need to renegotiate their employment contracts or restructure how they work with certain self-employed professionals to protect against the risk of misclassification allegations.