June 4, 2015
By Michael Gottlieb


Bill Wiseacre has had a bit of a rough start with a few missteps, but things are starting to go his way.  Bill’s good at what he does and as a result, Uh Oh Enterprises, LLC has been hired by several companies.  In fact, Bill’s become so busy, that he needed some help.  

Bill hired Stacey to be a part-time assistant and Bill and Stacey agreed that she would be an independent contractor. Theoretically this benefits each, but in reality, Bill wanted to do this because he wouldn’t have to deal with payroll, payroll taxes, or unemployment or worker’s compensation insurance.  Stacey also would receive more in each check since Bill wouldn’t be deducting all of those costs from her paycheck.  

Bill and Stacey continued this relationship for several months, but during an ebb in the ebb and flow of business, Bill panicked and fired Stacey.  Stacey was devastated.  She’d originally turned down a job working elsewhere because she was excited about the ground floor opportunity with Bill.  Now Stacey finds herself unemployed.  

Back when they’d had a discussion about whether Stacey was to be an employee or an independent contractor, she wasn’t paying much attention to the longer term ramifications, but instead was appreciative of the fact that Bill was willing to give her the choice to pick and she picked the higher pay option.  

As an independent contractor, she’s not eligible for unemployment benefits, but she didn’t know that and she applied for unemployment.  Bill received a notice that she filed and wasn’t at all concerned since she was an independent contractor, so at least he wouldn’t have to worry about this issue again, right?  

Unfortunately for Bill, the unemployment commission doesn’t care whether Bill and Stacey “agreed” that she would be an independent contractor.  They look at the reality of the situation to determine whether she was or was not an independent contractor and based upon the realities of their working relationship, the Unemployment Commission determined that Stacey was misclassified as an independent contractor and that she was in fact, under the eyes of the law, an employee (at least for unemployment insurance purposes).  

The Gottlieb Perspective:

  • Unfortunately for Bill, the reality is that under each state and Federal agency having jurisdiction, Stacey would likely have been deemed an employee.
  • Bill should have looked more carefully at the relationship he was intending to establish with Stacey as opposed to just trying to save money.
  • If he had (or had received good advice from someone knowledgeable about this issue), he would have brought Stacey on as an employee.

What would you have done in Bill's situation?
Share it on Twitter with #uhohenterprises with @gottlieblawfirm or comment below.

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