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Jack R.
Jack R., Lawyer
Category: Employment Law
Satisfied Customers: 6147
Experience:  Review contracts for major corporations
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We are a small business in CT with with 7 full time employees,

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We are a small business in CT with with 7 full time employees, this includes the owner. We have 1 employee who in Jan. 2013 got into a car accident; injured himself,( no one else), totaled the company car he was assigned to. He was hospitalized. The accident is still under investigation by the State Police. His workmen's comp was denied. The owner will not let him return to active work until we get the police report. We suspect he was drinking at the time of the accident. We have been paying him his commission on sales that he made prior to the accident, but not paying him his wages. My question is the boss wants to make him a "sub-contractor" (I think that is the correct term), no longer an employee. Pay him his commission on sales, mileage, reimburse him for gas etc. But does not want him on the payroll because of the liability. Can this be done? If so, how?

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Your boss can employ the services of an independent contract sales person. Your boss can convert the employee to an independent contractor. Your boss can create a contract which specifies the terms of the agreement. It should clearly document the payment structure. Your boss cannot control the methodology of how the work, and cannot provide the benefits an employee gets e.g. insurance, time off for holidays etc. Your boss would need to produce a 1099 for the amount paid.

 

Your boss should discuss the possibility of needing separate insurance to cover his risk around the contractor's activities with his insurance carrier..

 

The IRS may have an issue since he was an employee doing exactly the same task. You may need to show that other than paying for the sales activity no other relationship exists. Your boss should speak with his accountant to make sure he does not run afoul of the IRS . You can look at the following which the IRS has to help with determination of status: http://www.irs.gov/pub/irs-pdf/fss8.pdf

 

If your boss's motivation is to eliminate liability, hiring an independent contractor may not solve the problem.You generally aren't liable for injuries your independent contractor causes while working for you. However, If your boss knowingly engages an individual with a problem that could cause harm to another he may not be able to hide behind the fact the person was an independent contractor. There is a tort for "Negligent Hiring" which your boss may be liable for.

 

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