If you work in the construction sector, there is a good chance you rely on the equipment, expertise and availability of independent contractors. After all, even if you are a licensed contractor, you probably have neither the ability nor the desire to complete every aspect of a construction project on your own. Still, when you contract with an independent party, you must be careful not to run afoul of federal law.

The Immigration Reform and Control Act of 1986 requires employers to verify the identity and work eligibility of all employees. They do so by completing separate I-9 forms for everyone they hire. The law, however, specifically exempts independent contractors from the I-9 requirement. Nevertheless, you do not want U.S. Immigration and Customs Enforcement, the Department of Justice or any other federal agency to assert that you misclassified workers under the IRCA.

A five-factor test 

When determining whether an individual is an independent contractor or an employee, judges take a few different approaches. While some consider the common-law definition, others look to IRS regulations. A growing number, however, weighs the following five factors as part of an economic-realities test:

  1. The length of the professional relationship
  2. The contractor’s control over the independent contractor
  3. The skills needed to complete the project
  4. The financial investment of the contractor and independent contractor
  5. The contractor’s effect on the independent contractor’s potential profit or loss

Put simply, if an individual or organization has more control over an individual, he or she is apt to be an employee instead of an independent contractor. Judges should not, though, prefer any factor over others. Instead, they should consider the totality of the circumstances.

A word of caution 

Even though you typically do not have to obtain I-9 forms for independent contractors, you must not use the exemption to knowingly contract with individuals who lack the authorization to work in the United States. That is, classifying an individual as an independent contractor just to avoid the I-9 requirement probably violates federal law.

Clearly, classifying employees and independent contractors correctly is advantageous for any building contractor. By understanding when you must complete an I-9 for workers on your project, you can better plan for staying out of legal trouble.