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It is unlawful to hire an individual as an “employee” in the United States without verifying the individual’s identity and employment eligibility under the Immigration Reform and Control Act of 1986. Through IRCA, Congress developed a verification system to curb the employment of non-U.S. citizens who do not have work authorization from the federal government. This verification is accomplished through Form I-9, Employment Eligibility Verification. In using Form I-9, an employer must verify an individual’s identity and employment eligibility by reviewing certain documents or a combination of documents from a government provided list. Failure to verify employment eligibility or the knowing use of unauthorized services or labor is a violation of federal law. Who is an “employee?” Regulations under IRCA define an “employee” as “an individual who provides services or labor for an employer for wages or other remuneration but does not mean independent contractors … or those engaged in casual domestic employment.” This may come as some relief for employers who regularly engage freelancers, nannies, other domestic help, volunteers or anyone hired on a project basis. However, such employers should not breathe too easily, as these exemptions are not all that they seem. For example, the benefits of the independent contractor exemption are questionable because neither the applicable statute nor the regulation contains a strict definition of the term “independent contractor.” Only the government definitively determines whether an individual is, in fact, an “independent contractor” in any enforcement proceeding. The applicable regulation provides only a multiple factor test for determining whether an individual is an “independent contractor” or an “employee.” That test looks to factors such as whether the individual directs the work, has the opportunity for profit or loss from the work and provides his or her own tools. In the preface to the applicable regulation (issued in 1987), the Immigration and Naturalization Service (now part of the Department of Homeland Security) stated that the criteria and factors listed in the regulation were consistent with then current Internal Revenue Service guidelines. Therefore, IRS guidelines discussing who is an independent contractor may also be helpful. The IRS has published a list of 20 factors to consider when determining if an individual is an independent contractor. These factors are listed in IRS Revenue Ruling 87-41. Generally, the IRS will examine the relationship between the worker and the business, using three categories to examine the degree of control and independence: behavioral control, financial control and the type of relationship of the parties. The following descriptions are from IRS Publication 15-A, Employer’s Supplemental Tax Guide. For behavioral control, the IRS looks at the instructions and training the business gives the worker. According to the IRS, an employee is usually “subject to the business’ instruction about when, where, and how to work.” Also, independent contractors ordinarily are not “trained to perform services in a particular manner.” In terms of financial control, the IRS examines whether the worker has un-reimbursed business expenses, whether the worker is invested in the facilities the worker uses to complete the tasks, the extent to which the worker makes services available to others in the market, how the business pays the worker, and the extent to which the worker can realize a profit or loss. According to the IRS, an independent contractor is more likely to have un-reimbursed business expenses, is generally free to seek out other business opportunities, is usually paid a flat fee and can make a profit or loss. As far as the type of relationship category, the IRS looks to written contracts that describe the relationship between the parties, whether the business provides the worker with employee-type benefits, the permanency of the relationship and the extent to which the services performed are a key aspect of the business. If a relationship were for a specific project only, that would be evidence of an independent contractor relationship. Under these two tests, there is a large gray area of work relationships that may or may not qualify as independent contractor relationships. Consider the example of an employer that regularly hires the same freelance writer to create company documents. Because the writer has access to important company information, the employer requires the writer to clear any other writing projects with the company. Additionally, the employer has required the writer to attend training sessions to learn about the company and its preferred style of writing. While the company does not provide the writer with any office space, the company does require the writer to be available during business hours for meetings. Independent contractor? Only the government will decide for certain. Similarly, the “casual domestic” exemption is also not what it seems. To qualify for the exemption, the employment must be “sporadic, irregular or intermittent.” Therefore, regular, continuous employment of domestic help does not qualify. As the above reveals, whether an individual is an “employee” under the eligibility verification requirements is deceptively complex. Only in enforcement proceedings will the government determine whether an individual is subject to the verification requirements. Therefore, employers may decide that the path of least risk is to verify the employment eligibility of each individual hired in any capacity. Another option would be asking the government for an advisory opinion as to whether employment eligibility verification is required in a specific situation. Either way, employment eligibility verification is an important requirement that employers should not overlook. Richard R. Rulon is a partner and vice chairman of the immigration law group at Dechert. His practice focuses on employment-based immigration. Jill E. Family is an associate in the immigration group at Dechert. She is a graduate of Rutgers University School of Law-Camden, where she was an articles editor of the Rutgers Law Journal. If you are interested in submitting an article to law.com, please click here for our submission guidelines.

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