Explain employee vs. independent contractor classifications using the Madrid and Berne case scenario provided below.

Scenario

Madrid and Berne is a top-rated accounting firm with offices in Phoenix and Tucson. Madrid and Berne wanted to provide bookkeeping as an additional service to its clients. It hired Joan Newman Business Services, with offices in Phoenix, Flagstaff, Tucson, and Yuma, to perform contract bookkeeping services for Madrid and Berne clients who requested and needed such services. Madrid and Berne entered into an independent contractor agreement with Joan Newman Business Services. The contract stated that Joan Newman is an independent contractor and agrees that her business is an independent contractor of Madrid and Berne.

After entering into the agreement, Joan worked solely on jobs assigned by Madrid and Berne and was paid a commission for the work. The commission was based upon the fees determined by Madrid and Berne and paid by the clients to Madrid and Berne. Joan was paid on a weekly basis. She used available and unused office space at Madrid and Berne, along with Madrid and Berne's equipment and supplies. This arrangement made it easier for clients to utilize Joan's services and be familiar with the offices. Madrid and Berne reviewed Joan's work and returned faulty work to her for corrections before delivering the completed work to the clients.

Case study

1. Provide an explanation of why it is important to know the distinctions between employees and independent contractors when operating a business.

2. Discuss the key factors for determining Joan's employee classification using the concepts that have been presented so far in the course and your own research relevant to the scenario.

3. Using the rules for distinguishing between employee and independent contractor, discuss whether Joan's designation as an independent contractor was correct, and justify your designation by citing laws and federal regulations.