Can an independent contractor or a consultant manage company employees?

Allowing  independent contractors or consultants to manage company employees is not a recommended practice. Independent contractors or consultants are often hired for their specialized expertise with the intention that the relationship will be short-term and focused on providing services that existing organizational employees are unable to provide.

Furthermore, independent contractors and consultants are usually engaged using consulting agreements or contracts, which outline the services they will provide, the manner and means for providing these services, and the expected results. Consultants and independent contractors are bound by the terms of their consulting agreement or contract, not by the organization's personnel policies, employee handbook or employment-at-will doctrine.

Managing employees, on the other hand, typically involves overseeing and enforcing the organization's personnel policies and procedures. Educating and coaching employees on how to adhere to the company's personnel policies and procedures, culture and values through orientation and other types of training is usually a management responsibility. In addition managers may be responsible for managing company functions that, according to guidance from the DOL, "are an integral part of the employer's business," including supervision of the company's employees.

These are just a few examples of "behavioral control" and "relationship of the parties" criteria that are often used to distinguish an employee from an independent contractor. Both the Internal Revenue Service (IRS) and the U.S. Department of Labor (DOL) may refer to these criteria when evaluating whether a worker has been properly classified as an independent contractor. The consequences for misclassification can be extremely costly to the organization.

Permitting independent contractors or consultants to manage company employees blurs the lines when determining whether a worker is an employee or an independent contractor. This confusion can be costly to employers, especially if they fail to withhold and pay Social Security, Medicare and unemployment taxes, and fail to withhold income taxes. Federal and state wage and hour enforcement may also have been compromised, along with effective and meaningful employee relations.