An independent contractor is an individual or business that provides services to another entity. According to the Internal Revenue Service (IRS), “the general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.” The distinction between an independent contractor and an employee can become confusing, which can lead to problems for companies who misclassify employees as independent contractors.
There are advantages and disadvantages to Maryland employers that use independent contractors. Because employers are required to pay certain benefits and taxes on behalf of their employees, the financial benefits of having a large independent contractor work force may be significant. However, it can also be extremely burdensome for employers to keep on top of exactly what qualifies someone as an independent contractor and the penalties for misclassification can be costly. Federal and state agencies are also more diligently pursuing employers that misclassify workers. For instance, in September 2011, the IRS and the Department of Labor entered into a Memorandum of Understanding that allows these agencies to share information more freely and prosecute employers for misclassification.
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