Employees vs. Independent Contractors

Little known fact: not all jobs are created equally when it comes to how they are classified under the law. For example, take this hypothetical: Rocking R Ranch employs several people to do different jobs. Billy cleans the stalls, Margaret keeps the books, and John is the head trainer. Rocking R has employment agreements with each individual and lists Billy as an employee but Margaret and John as independent contractors. Is this correct? The decision will determine responsibilities and liability for Rocking R and its workers.

The distinction can make a world of difference for both the barn and the three workers.

First, employees are protected by state and national laws ranging from state workers’ compensation laws to the federal Fair Labor Standards Act.

Independent contractors, on the other hand, are not so protected. Additionally, employers of independent contractors do not pay taxes on their workers’ salaries and are not responsible for providing workers’ compensation, unemployment insurance, or other employment benefits. Finally, if an independent contractor commits a wrongful act, the employer will not be liable in the same manner that they might if an employee committed the act.

The IRS considers three overarching factors in determining whether a worker is an employee or an independent contractor for tax purposes. These factors are:

1. the amount of behavioral control the employer has;

2. the amount of financial control the employer has; and

3. the general relationship between the parties.

In analyzing these factors, the IRS considers how the worker performs their assigned tasks and how much instruction the employer gives. The IRS will also consider to what extent materials for the assigned tasks are supplied by the employer or by the worker. Generally speaking, the more input the employer has, the more likely the IRS is to find the worker is an employee rather than an independent contractor.

Federal courts consider other factors in determining, for example, whether an employment relationship exists for purposes of federal employment laws. These factors include:

1. the degree of the employer’s right to control how the work is performed;

2. the degree of skill required to perform the work;

3. the worker’s investment in the business;

4. the permanence of the working relationship;

5. the worker’s opportunity for profit or loss; and

6. the extent to which the work is an integral part of the business.

States sometimes simplify these factors into a “right to control” analysis. Under this test, the relationship between employer and worker is categorized according to the amount of control the employer exercises over the mode, method, and manner of the work performed. This analysis is frequently employed in cases regarding the employer’s liability for the worker’s wrongful act.

Under the doctrine of respondeat superior, an employer is liable for the wrongful acts or torts committed by an employee in the scope of the employee’s work (with some exceptions). An employer is not liable for wrongful acts committed by an independent contractor, with some exceptions. If an employee commits a tort while deviating from the normal course of employment, the employer may be able to escape liability. This ability will depend on whether the deviation was a minor “detour” or a more substantial “frolic.” If it is a frolic, it will be outside the scope of employment and respondeat superior will likely not apply.

Consider this: John (the head trainer at Rocking R) negligently assigns an advanced horse to a beginner rider and the rider is injured. Liability will depend on whether John really was an independent contractor. In a court using a right to control analysis, the court will consider how much influence Rocking R had over John’s work. If John has an exclusive contract with Rocking R, Rocking R states in its employment contract how John is to assign horses to riders, Rocking R pays John a salary rather than an hourly wage, and Rocking R depends on John’s teaching, the court will be more likely to decide John is an employee. Therefore, Rocking R would be vicariously liable for the rider’s injury.

When creating liability release forms, a best practice is to include a clause stating that the signor agrees to release all employees and independent contractors. That way, everyone employed by the barn will be protected regardless of their categorization under the law. But remember – even the most well-drafted liability release form will probably not protect against gross negligence!

Like most legal questions, determining whether a worker is an employee or an independent contractor is a fact-intensive inquiry. Therefore, if you have specific questions, you should consult a licensed attorney.

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Why You Should Keep Your Small Business Attorney on Retainer

October 31, 2024

When something in your business happens, you need to be able to address it quickly. You might not have time to call an attorney, set up an initial consultation, determine if you like them, and then move forward on your project. In business, you need to make things happen. That’s what having an attorney on retainer can do for you. What can an attorney on retainer offer? Having an attorney on retainer offers access to all the services the attorney offers, right when you need them. It’s basically like having an attorney on call. The retainer arrangement can be structured to fit your needs, from the duration of the arrangement to the scope and the cost. Services typically offered in a retainer arrangement include: Drafting contracts, programs, policies, or other documents Negotiating contracts or financing deals Handling all of the legal details of your business, from attending board meetings to conducting follow-up meetings with stakeholders Consistent access to the attorney for advice Freedom to schedule attorney services as much or as little as needed – and it can vary from month to month Who can benefit from having an attorney on retainer? Retainers are most useful for businesses or individuals who need a lot of legal work over a spread out period of time, or need constant legal work but do not have the resources to hire a lawyer full time. Businesses or individuals who find themselves constantly with questions about the law can also benefit from an attorney on retainer. Have a question? Check in with your attorney. Need a document updated? Let your attorney know. Someone presented you with a contract but you're not sure if it's in your best interest? Ask your attorney for their opinion. With an attorney on retainer, you have the benefit of in-house counsel without the expense. You also have peace of mind knowing that if something comes up you have the resources to handle it - and you can get back to your business faster. Contact any member of our team at rb Legal, LLC to learn about how we can provide you sound, legal advice whenever you need it.

How Often Should I Update My Will or Trust?

October 31, 2024

Estate planning is one of those tasks that people generally avoid. It takes some mental fortitude to think about and plan for unknown events. Most every client tell us they feel a sense of relief once their plan is in place. As with anything, the more you do something, the easier it gets. Reviewing and revising your estate plan is important, especially in light of the following events. Legal Matters Depending on your circumstances, you may need both a will and a trust. A will is a set of instructions that are followed when you pass. A trust is a document that creates a protection around things that you own. It becomes effective the moment you sign it and it is useful in estates where there are probate assets, where you have inheritance going to children and you want restrictions, and in tax savings situations. When the tax laws change, it can affect your estate. This may mean that if you don't update your estate plan, you may find that the additional tax burdens fall on a loved one. You may want to take another look at your estate plan if you haven't reviewed it in the past 5 years or so. Impending Windfalls This should be an easy one for most people, especially considering it's a memorable event. If you're about to get a large sum of money, you will need to consider who will receive that money and how. If you're planning to give it to your children, you may want to do so before the assets appreciate (or before they appreciate even more) to escape the gift tax placed on amounts over a certain level (the specific amount adjusts for inflation periodically.) Major Losses Even if your property isn't directly affected during a recession, the interest rates and the declining asset values may impact you more than you think. In some cases, it may work to your advantage, so it's worth seeing what a qualified attorney can do to restructure your finances. This can either be done through documented gifts or through transfers within a family. If you're worried about transferring because it reduces your overall net worth, there are trusts available that can ensure a sustainable income specifically for you in the future. Changes in Relationships You'll need to be quick in changing your estate plan should you want to add or remove someone. Typically there's more than meets the eye when it comes to wills and marriage or more especially unmarried relationships of long duration. Retirement assets, savings bonds and life insurance can hall have an impact on your estate. Joint checking accounts and major purchases can affect the amount you assume someone will get and the amount they actually receive. Divorce especially makes for a complicated situation with estate planning (even with prenups), so it's best to get professional legal advice in this case. Creating an estate plan can be an intimidating and even uncomfortable process, but it doesn’t have to be. We help guide you through the tough questions and even involve key members of your family, if you’d like, in the discussions. For more information on how we can help, call any member of our team at your convenience.

ESTATE PLANNING 102: What is a Trust?

October 31, 2024

You have probably heard of this thing called a “trust.” You may even have a trust. But do you know what a trust is? Merriam-Webster defines a trust as “an arrangement in which someone's property or money is legally held or managed by someone else or by an organization (such as a bank) for usually a set period of time.” A trust is a legal entity created for a specific purpose. It is created by a legal document, called a trust agreement. The trust’s purpose can be something simple like holding property for a specific person or more complex like managing assets for your minor children or a business. It’s a Bucket. A trust is like a bucket. A bucket is used to hold water, rocks, or ice cream. A trust is used to hold money, real estate, and other property. Here’s how it works. One person uses a trust agreement to create the bucket, and then puts his or her property into the bucket. Another person then holds the bucket and follows the instructions in the trust agreement about what to do with the things inside the bucket, such as investing, maintaining, or selling the property. When the trust agreement instructs, that person takes the things out of the bucket and gives it to the person or persons specified in the agreement. The person who creates the trust bucket and puts property into the bucket is called the trustor, the settlor, or the grantor. The person who holds the bucket is the trustee. The person who gets the property from the bucket is called the beneficiary. Sometimes one person can be the trustor, the trustee and a beneficiary. But most often different people or organizations will play the different roles. It’s a Tool. Trusts are useful tools in many different contexts. Individuals use them in estate planning as a means of transferring property from one generation to another without requiring the involvement of a probate court. Businesses use trusts to perform various kinds of business transactions. Non-profits and Foundations use trusts as a means of managing their assets. It’s Beneficial. In the estate planning context, trusts provide several benefits. Three of the most important benefits are privacy, continuity, and control. Privacy . When a trust is used to transfer property after someone dies, the terms of the trust can remain private. If a will was used instead, the terms of the will would be made public through the probate court proceedings. You may not want your nosy neighbor to know the extent or value of your Facebook stock, or that after you died, you gave it to the non-nosy neighbor two houses over. A trust can help keep that information out of the public record. Smooth Transition . You may have assets that need continual management and attention. And you may care for children and others that rely on your financial support. A trust has a trustee or successor trustee in place to manage those assets and to financially provide for those beneficiaries. With a trust, someone is already there and a plan is in already in place in the event that you become incapacitated or die. Control . When a will is used to transfer property at death, the property is divided as specified in the will and then distributed all at once to the people indicated. With a trust, you have much more control over when and how the property is divided and distributed. For example, perhaps you have one child who is not very responsible with money. You know that if she received her inheritance all at once, she would spend it all on fast cars or entertaining friends. Or perhaps you have a child with anxiety who would be overwhelmed by receiving all his inheritance at once. A trust is a way to make sure that your child only gets what he or she can handle, a little at a time. In that way, a trust offers more control than a will does over the process of transferring property at your death. Is a Trust Right For You? With all its benefits, a trust is not necessarily the right tool for everyone. A trust is more expensive to create and maintain than other estate planning options. In the end, however, it is roughly equivalent to the cost of a probate. An attorney specializing in estate planning can discuss your needs and options and help you decide if the trust bucket is the right tool for your estate plan. If you have questions on this, please feel free to call our office and speak to Rebecca or Alexia or set up a complimentary consultation.