Independent Contractor Agreement Hawaii

Trying to understand an independent contractor agreement Hawaii? A business entity is often referred to as an independent contractor.4 min read

Trying to understand an independent contractor agreement Hawaii? A business entity is often referred to as an independent contractor. When two parties enter into an agreement to provide services this is called an independent contractor agreement. The two parties can be either individuals or business entities.

What Are the Benefits of an Independent Contractor Agreement?

An independent contractor agreement provides several benefits for both the contractor and the company or individual who is hiring the contractor. For one, it serves as proof that the independent contractor and the hiring company do not have an existing employee/employer relationship. The contract also provides details as to the scope of work that is to be completed, along with the compensation and other expectations.

Benefits of Hiring Independent Contractors

• Reduced onboarding costs
• Ability to end the relationship at any time
• Ability to partner with workers who have a diverse range of skills

What Is the Difference Between Employee and Independent Contractor?

In terms of an employer's responsibilities, there is a big difference in identifying an individual as an employee or an independent contractor. This is especially important when it comes to pension eligibility, wages, worker's compensation, and other things. Federal laws will rule on certain issues but state laws generally determine an employer's responsibility when it comes to worker's compensation, unemployment tax liability, and wages.

What Determines if an Employee Needs Worker's Compensation Coverage?

The relationship between an employer or an employee is what determines if an individual is eligible for worker's compensation coverage. According to the Hawaii Department of Labor, if a person has the power, express or implied, to command how the work will be accomplished by another individual, then an employment relationship has been established.

If a worker is misclassified as an independent contractor when really the individual should have been classified as an employee, there is a process for reclassification. The reclassification can result in back pay, benefits, sometimes, penalties, and fines for the business. A control test will determine if the individual is eligible for worker's compensation. The test looks at whether the person doing the hiring has the power, express or implied to control and direct the way the work is to be accomplished.

How to Determine if Employee Is Eligible for Unemployment Compensation

To determine if an individual is eligible for unemployment compensation, the Hawaii Employment Security Act uses an ABC test. The test determines if the individual is free to perform and complete the work as set forth in the individual's contract. It looks at whether the service is performed outside the usual course of the business and whether the individual is usually working as an individual in an established trade, profession, or occupation as that of which they were being hired.

When determining whether an individual worker is an employee or an independent contractor it is wise to look at the entire relationship and consider how much control and direct power the hiring individual will have. In addition, it is a good idea to document how you come to your conclusion. Unfortunately, the line between whether an individual is an employee or an independent contractor is often blurred, and employers just choose to classify them as either.