What are the three legal tests
What are the three legal tests for determining whether or not a worker should be classified as an employee of a company, and which legal test makes the most economic and legal sense as regards Karen and the You Decide Problem?
These are the details of the You Decide Problem –
Cynthia is the human resources manager at ABC Utility, as well as Karen’s supervisor. Karen is an individual who has been working at ABC Utility.
I will need to look at Karen’s employment relationship to determine if she is an employee or an independent contractor. How do I decide?
Karen is a human resources consultant at a local utility. Originally, the work requested was project based. Karen was asked to develop training materials for an upcoming session on diversity. Cynthia, the human resources manager, was very happy with the work that Karen did and asked her to work on some additional projects. Before everyone knew it, Karen had been working at the utility for five years.
Karen has been paid a monthly base salary of $10,000 per month. Karen has received a 1099 for her wages over the past five years, but has not received a W-2. Karen was not offered any benefits, but when she was hired, she did not need them, as she was happily married. However, Karen’s husband recently passed away and she asked Cynthia about receiving benefits. Cynthia has denied Karen’s request. Karen’s title, when she started, was Human Resources Temporary, but her new title evolved into Human Resources Consultant to be more consistent with others in the department who are doing work similar to hers. Karen does have a contract with the utility.
Karen has had other limited clients over the years. She had one client for an approximately 40-hour project two years ago, and she currently has another client that keeps her on a retainer basis.
Since she was denied benefits, Karen has contacted the IRS to ask them to determine her status.
The three tests for determining whether or not a worker should be classified as an employee of a company are:
1. Common law test – This test helps to see whether the employee has the right to control the work process. This is achieved by evaluating the totality of the circumstances as well as specific factors.
2. Economic realities test – This test helps in identifying if the employee is economically dependent on the business in order to continue his/her employment.
3. Hybrid test – This test considers both the common law test and the economic realities by focusing on who has the right to control the means and their performance.
In Karen’s case, the hybrid test makes the most economic and legal sens