Common Law Employees

What Are Common Law Employees?

Common law employees are those classified as such by the IRS and DOL in the US. Common law employee status affects tax duties, benefits eligibility, and liabilities. A person is an employee under common law if the employer can determine how, when, and where the labour is done. Employees have control, unlike independent contractors, who choose their hours and work techniques.

A common law employee is a person whose employment relationship with an organization is defined by common law, specifically employment and tax rules. Common law defines an employee as someone who works for an employer who dictates what and how they conduct their job. This control includes scheduling, tool and equipment provision, and performance evaluation. Common law workers also enjoy long-term relationships with their employers, demonstrating a feeling of permanence.

Misclassifying common law workers as independent contractors may cost firms financially and legally. Misclassified workers may be denied legal rights and protections, and businesses may be fined and taxed. Thus, employers and employees must properly determine workers' employment status to comply with laws and maintain a fair and equal working relationship.
Example

Example Of Common Law Employees

Software engineers employed by IT companies are common law employees. In this situation, the engineer works full-time in the company's office, follows a fixed schedule, and gets frequent task and project instructions. The corporation gives the engineer a computer, software license, and office space.

Employers control engineer behaviour by establishing deadlines, work obligations, and task instructions. The corporation pays the engineer, reimburses work-related expenditures, and offers health insurance and paid time off, demonstrating financial management. Since the engineer personally develops the company's software products, their connection is long-term and vital to its operations.