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Independent Contractors in Illinois

 
By Momkus, McCluskey, Monroe, Marsh & Spyratos, LLC
  1. LIABILITY FOR INCOME TAX WITHHOLDING (STATE AND FEDERAL)
    1. What Is the IRS Definition?
      1. Common law rules define employer-employee relationship - a worker is an employee under the common law rules if the person for whom he works has the right to direct and control his work both as to the final results and as to the details of when, where and how the work is to be done, regardless of whether control is actually exercised
      2. Basic factors of employer-employee relationship (CONTROL)
        1. Ability to hire and fire
        2. Worker must devote full time to the business of the employer
        3. Existence of a continuing relationship
        4. Training, integration of services and other indicia evidencing control
        5. Employer provides office and/or means and/or tools to accomplish the work
    2. IRS Procedure in Determining Tax Liability
      1. IRS audit - for underpayment or nonpayment of taxes. Once an audit is triggered, the IRS will make a determination under the guidelines and common law rules whether or not workers can be considered employees or independent contractors.
      2. Determination of independent contractor status - in this case, a company has no liability and the IRS looks to the individual worker for payment of applicable taxes.
      3. Determination of employee status - the IRS will calculate all outstanding tax withholdings owed but will permit the company to establish whether the individual worker has paid any such taxes. If such taxes have been paid, the total liability will be reduced by the amount paid. However, the company has the burden of gathering and providing this information to the satisfaction of the IRS.
  2. LIABILITY FOR STATE EMPLOYEE "HEAD TAXES" (E.G., UNEMPLOYMENT) AND OVERTIME
    1. Unemployment Taxes - Under Illinois law, a temporary service company is responsible for payment of unemployment compensation of a temporary/project contractor unless the contractor was in business for himself and worked for clients other than the company's clients.
    2. Workers compensation- not applicable if the worker is an independent contractor.
    3. Overtime- not applicable to an independent contractor.
    4. Triggering of Other Audits
      1. Filing a worker's compensation claim or filing for state unemployment relief will often trigger an audit by that agency and may well trigger audits by both the IRS and the state taxing authority regarding withholding issues.
  3. Ownership of ideas and inventions of your independent contractors
    1. By agreement - either the comapny or the client can have the worker sign an employment contract which will assign their rights to any and all inventions and ideas developed by them.
    2. By statute - Illinois specifically has a statute which addresses certain aspects of ownership rights vis-a-vis an employer and employee and inventions invented by the employee. Other states have similar statutes.
    3. Caveat - Since assignment documents are usually used by employers in an employment situation, independent contractors are not usually asked to execute these documents because of the implicit admission by the employer that the worker is not really independent but is in fact an employee. Therefore, a specialized document between an employer and an independent contractor will be critical especially in the high tech area where customized work is being done for the employer's client.
  4. LIABILITY FOR THE ACTS OF AN INDEPENDENT CONTRACTOR VS. EMPLOYEE
    1. Independent Contractor Liability - an independent contractor is responsible for any liability caused by the contractor. Normally, independent contractors will agree to defend, indemnify and hold harmless the comapny and should require this indemnity with liability insurance which names the temporary agency as an additional insured. This insurance should be addressed through a written agreement between the company and the independent contractor.
    2. Employee - through the legal doctrine of respondeat superior, an employer will always be held liable for acts of the employee committed within the scope of the employment.






© 2000  Momkus, McCluskey, Monroe, Marsh & Spyratos, LLC
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