Series: Employee vs Subcontractor

Part 2 - Financial Control, Evaluating Worker Independence

authored by Nicky Franks, EAA Business Advisor

• Introducing Nicky Franks, a seasoned expert in strategic financial management and compliance. With a proven track record managing over half a billion dollars in expenses and leading initiatives in revenue recognition, Nicky brings invaluable insights to our blog series, Elevated Insights. Her client-centric approach, coupled with extensive experience in audits and restructuring, ensures practical advice tailored to enhance business efficiency and compliance. Trust Nicky's expertise to navigate complex financial landscapes and optimize organizational performance.

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Greetings from the desk of Nicky Franks, where we dive deeper into the critical realm of Financial Control—the linchpin in distinguishing between employees and independent contractors.

Financial Control scrutinizes the degree of financial autonomy a worker enjoys from their employer. Both the IRS and Montana Department of Labor & Industry scrutinize several vital aspects

Key elements include:

• Significant Investment: Does the worker invest in their equipment or materials? Independent contractors typically use their resources, while employees often rely on company-provided tools.
• Expenses: Are business and travel expenses reimbursed? Contractors generally cover their expenses, whereas employees are typically reimbursed.
• Opportunity for Profit or Loss: Can the worker experience financial gain or loss based on their managerial skills? Contractors usually have this potential, unlike employees who receive fixed salaries.
• Services Available to the Market: Does the worker offer their services to the public? Contractors commonly advertise and serve multiple clients.

Example: Consider a software developer who invests in their computer and software licenses, serving various clients—a clear indicator of an independent contractor. Conversely, a developer using company-provided equipment and receiving a steady paycheck leans towards employee status.

Implication: Correctly assessing these financial control factors is vital for businesses to avoid misclassification, steering clear of financial penalties and legal entanglements.

Understanding and evaluating financial independence is pivotal in navigating the complexities of worker classification. By grasping these nuances of financial control, businesses empower themselves to make informed decisions, ensuring compliance with regulatory standards. Stay tuned as we continue to unravel more insights in our ongoing exploration. Until next time!

Warm regards,
Nicky