Misclassified? A huge misconception sometimes arises in the business world when members of the workforce are deemed an “Independent Contractor.” Using a work-force of Independent Contractors or 1099 employees dramatically reduces costs for businesses and is lawful when done properly. Independent Contractors are cheaper to use because there is no need for the employer to pay half of the employee’s tax liabilities, it eliminates the needs for a business to cover their employees with worker’s compensation costs, it eliminates the concerns for unemployment claims and eliminates the need to pay overtime. This list is not exclusive.
However, using a work-force of Independent Contractors if done improperly has some harsh penalties by the IRS, opens up liability for civil actions by Employees, and can prove to be the undoing of businesses.
But How Can I Be Sure?
How do you know if someone is misclassified? It really boils down to control over the work-force. Control could be behavioral, as in does the company teach and tell an employee how to do their job? If so, that person is probably not an Independent Contractor. The control could be financial, as in does the business provide the tools for the job or have the employee on its company payroll? If so, that person is probably not an Independent Contractor.
Beyond the factor of control, is a general sense of the type of relationship an employee has with a business. Is the employee entitled to a company 401k or other benefits? Is the relationship between employee and employer ongoing? The more it looks like a person is a regular employee for a business, the more likely they will not be considered an Independent Contractor by a court or the IRS.
Ask yourself this: Are you, or is your work-force, operating like a roofer? Only going to someone’s residence to fix the leaks? Or, are you, or is your work-force, on a company payroll? Getting vacation time benefits? Are there set times for workers to report to their shifts?
The answer could be costly. Find out more in the next publication, or contact us.