The Employment Relationship

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Most work gets done through the establishment of employment relationships, though this is not always the case. You might be surprised by how slippery the definitions of “employee” and “employer” turn out to be—and how recent changes in the structure of employment have complicated matters. Full-time employment by a single employer is still the norm, but there are many variations on this theme. These variations can affect the legal rights of people performing work.

The first important reason to correctly determine whether someone performing work is actually an employee is because this information is required for compliance with tax laws. If someone is an employee, the employer is required to withhold income taxes, pay the employer’s share of Social Security and Medicare taxes, and provide workers’ compensation and unemployment insurance. Audits conducted in more than 20 states through 2012 found that 10 to 30 percent of employers had misclassified at least some of their employees as independent contractors.

The second important reason to determine whether an employment relationship exists is that most of the laws do not apply in the absence of an employment relationship. Employee status may also be a prerequisite for a claim of contractual benefits stemming from an employer’s policies and benefit programs. In addition, coverage by employment laws often depends on a firm meeting minimum-size requirements. Because only employees are counted when determining firm size, whether particular individuals are employees can determine whether other individuals who clearly are employees will have legal rights to assert.

The other side of the employment relationship must also be considered. Even when a person doing work is clearly an employee, there can still be questions about the identity of the employer. Complexities in corporate structure, and practices such as leasing employees through temp agencies, can cloud the issue of which entity is liable if employees’ rights are violated.
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