Scenario Summary: 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. Your Role/Assignment: Your role is to decide if Karen is an independent contractor or an employee and discuss some of the preventative and ethical situations that are occurring in this case. Questions: 1. Do you feel that Karen is an independent contractor or an employee?
What is your rationale for this decision? I think that Karen should be considered an employee of the company. She has been working for the company for five years and this company has paid her a salary yearly. I believe the company hire Karen as an employee to make things right. In addition, they should immediately provide her the benefits that she is seeking. However, Karen should eliminate working with other clients in the future. This will allow her to work for only this company that has the benefits she needs.
This is also so the current company, that she is considered a contract employee at, will not be able to use this against her if she chooses to be persistent in taking a legal direction with the company. 2. What factors do you feel help contribute to Karen being an employee? A factor that I feel helps contribute to Karen being an employee is the fact that she has been working for the same company full time for five years. Most contractors are paid per the job however she was paid a salary. In addition, after her initial project was complete which she was contracted for, she began to complete various other projected for her manager.
Another factor that helps contribute to Karen being an employee was her title change from Human Resource Temporary to Human Resource Consultant. The company removed the word temporary from her title so that she would have the same title as other individuals (employees) in the department. 3. What factors favor her being a contractor? A factor that I feel favors Karen as being a contractor is because there is an actual contract between Karen and the company indicating that she is a contractor. Thus she was actually hired as a contractor and there was never any mention of her becoming an actual employee.
Another factor is that Karen has only received 1099s from the company and has never received a W9. The last factor would be that Karen has several other clients that she does work for. This could be taken as Karen had other forms of income and knew that her job at the company was only temporary. The information provided does not detail if Karen’s manager tells her where to work or when she works; however if this is the case (that her manager does not dictate these things) then these are other factors that could be in favor for Karen being a contractor. . What are some potential legal implications in the case? What should the utility do to rectify any wrongs in this situation? A potential implication in this case would be the contract between Karen and the company. Our textbook describes the common-law agency test as “a test used to determine employee status; the employer must merely have the right or ability to control the work for a worker to be classified as an employee” (Bennett-Alexander & Hartman, 2009). In this case, Karen’s manager continuously gives Karen the projects she is to work on.
Thus this is a potential legal implication she is an employee. Another legal implication in the case is the Karen is paid the same pay of $10,000 monthly. The majority of contractual employees are paid based on the specific task or project. In this case, Karen was paid as an employee would (a consistent monthly amount). To rectify any wrongs in this situation, the utility should classify Karen as an employee and eliminate the contract they have on file with Karen.
The utility should provide Karen with the same benefits as the other employees at the company. In addition, they should pay the Internal Revenue Service the back taxes for the misclassification of Karen as a contractor. Hawthorne (2001) also details in some instances some employees that were classified incorrectly also want reimbursement paid for back wages or benefits. This may be something utility may want to proactively consider (to reimburse Karen back wages or benefits).