Dealing With Independent Contractors: Pros, Cons, and Michigan's Standards

With an ever-evolving gig economy, it is likely that you will either encounter an independent contractor or be one yourself. The choice between employee or contractor comes with its own set of advantages and disadvantages for both the organization and its workers. To make an informed decision, it is important to understand the implications of each classification. In this post, the business attorneys of Thompson Legal discuss the pros and cons of independent contractors and provide an overview of Michigan's current standards.

Please note that this post is not exhaustive, and every situation is unique. In the event that you have questions about your business, it’s advisable to speak with a licensed attorney. Contact Thompson Legal to schedule a discovery call with a Michigan business attorney.

Pros of Independent Contractors

1. Cost Savings: One of the most obvious advantages of hiring independent contractors is cost savings. Independent contractors are typically responsible for their own taxes, benefits, and overhead costs, such as office space and equipment. This can significantly reduce an organization's expenses compared to hiring full-time employees.

2. Flexibility: Independent contractors offer flexibility in terms of hiring and termination. Companies can engage them on a project-to-project basis, adapting to fluctuating workloads without the obligations that come with employing full-time staff.

3. Specialized Expertise: Independent contractors often bring specialized skills and expertise to the table. Companies can tap into a diverse pool of talent, benefiting from the knowledge and experience of professionals who excel in their specific fields.

4. Reduced Liability: Independent contractors are generally responsible for their own liability, including insurance coverage. This can help shield the hiring organization from certain legal and financial risks.

Cons of Independent Contractors

1. Less Control: Employers have less direct control over independent contractors compared to employees. While companies can set project goals and deadlines, contractors maintain control over their work methods and schedules.

2. Limited Loyalty: Independent contractors may not have the same level of loyalty and commitment as full-time employees. Since their relationship with the company is often transactional, contractors may prioritize their interests over the company's long-term goals.

3. Potential Misclassification: Misclassifying workers as independent contractors when they should be employees can lead to legal troubles and penalties. Proper classification is essential to comply with labor laws and tax regulations.

Michigan's Standards for Independent Contractor Classification

Michigan provides guidelines to help businesses determine whether a worker should be classified as an independent contractor or an employee. These guidelines emphasize the importance of various factors, including:

1. Behavioral Control: Companies should consider whether they have the right to control or direct how the worker performs their tasks. More control suggests an employee relationship.

2. Financial Control: Examining factors such as investment in equipment and opportunities for profit or loss can help distinguish contractors from employees.

3. Relationship Type: The nature of the relationship, as defined by written contracts and benefits, is crucial. An ongoing relationship with extensive benefits leans toward an employment relationship.

4. Customary Trade Practices: Businesses should also assess whether their industry typically classifies workers as employees or contractors.

For more detailed information and specific guidance on worker classification in Michigan, please refer to the official Michigan Department of Labor and Economic Opportunity website: Michigan's Independent Contractor or Employee Fact Sheet.

Conclusion

Hiring independent contractors can be a strategic choice for many businesses, offering advantages such as cost savings, flexibility, and access to specialized expertise. However, understanding these guidelines is essential to avoid legal complications and ensure compliance with labor and tax laws. If you are a Michigan business considering independent contractors, contact Thompson Legal to schedule a discovery call with an experienced Michigan business lawyer.

This blog is for informational purposes only. It is not intended as legal advice. In the event you would like to speak with a business lawyer about your case Contact Us at (734) 743-1646 to schedule a consultation.