Scenario:

Ely Associates, a financial services firm, needs an additional worker in the billing office but has not budgeted for a full-time employee. The vice president of finance determines that a worker would be hired as an independent contractor to perform the same duties as the other billing clerks. The new worker will be paid on an hourly basis, but will not receive benefits. After finding someone for the position, the new worker is asked to sign a contract indicating she understands that she is an independent contractor and will not receive benefits. Because the new worker is classified as an independent contractor, the payroll office does not withhold FICA taxes or make FICA contributions. Two months after the new worker started, she contacts Payroll and her supervisor because she is concerned that she is not receiving overtime for the 44 hours that she works each week. She also is concerned about not being credited for Social Security. She is reminded that she is classified as an independent contractor and is not eligible for overtime or benefits. Her supervisor also reminds her that she signed a contract acknowledging this. The worker makes a complaint to the Department of Labor, and the Internal Revenue Service and investigations occur.

1. What do you believe will be the Department of Labor and Internal Revenue Services response to Ely Associates about the classification of the new worker?

2. What are the key guidelines that organizations should use to determine the classification of workers as either independent contractors or employees?

3. Should there be differences (benefits, taxes, etc.) whether an individual is performing work as an employee or as an independent contractor? Explain your reasoning.