Page 222 - Washington Nonprofit Handbook 2018 Edition

b. Independent Contractor versus Employee

A person who performs services for an organization with an expectation or

understanding that they will be paid for services is in most circumstances deemed
to be an employee. This is virtually always the case if the individual is providing
services that are part of the organization’s regular business and mission.
Independent contractor relationships are an exception to the general presumption
of employment and arise when an organization retains the services of an outside
person or business to perform some specific task at a designated price. An
example would be a nonprofit organization’s retention of a painter to refurbish its
offices or a computer consultant to install new software.

Unfortunately, the employee/independent contractor distinction is
frequently misunderstood, with the consequence that organizations and individuals
who work for them believe that they may choose whether to be considered
employees or independent contractors. This is not the case. Legal standards

determine which classification applies to any given relationship. Because of an
increasing focus on enforcement of legal standards and the costly consequences of
misclassification (claims for wages, tax violations, etc.), the following information
outlines the rigorous standards for establishing an independent contractor
relationship and demonstrates why most individuals working for a nonprofit are
employees.

The tests for determining an individual’s status vary according to the
applicable law. Under both federal and state law governing minimum wages and
overtime, the Fair Labor Standards Act (“FLSA”) and Washington Minimum Wage Act
(“WMWA”), respectively, courts use an “economic reality” test to determine whether
the worker is an employee. For most other purposes, such as income tax

withholding, courts apply the “right of control.” While a person could be deemed an
employee for purposes of the FLSA but not for other purposes, such cases are rare.
Employers should carefully review these factors to ensure that its independent
contractors are appropriately classified.

(i) “Right of Control” Test

The test for determining whether a worker is an employee for purposes of
income tax withholding, social security tax contributions and ERISA coverage is
whether the employer has “the right to control the manner and means by which the
work is accomplished.”

WASHINGTON NONPROFIT HANDBOOK -211- 2018