Don’t let worker misclassification come back to bite you

| Jul 13, 2020 | Employee Misclassification |

Businesses are constantly looking for ways to cut costs and maximize efficiency and profits. This isn’t always an easy endeavor, though. Oftentimes it involves conducting a risk-reward analysis, requiring you to assess how much you want to put on the line to try to save your business some money. You need to be extra careful when handling these matters because any misstep could cost you significantly later down the road. Not just in money, either. A bad business decision can wreak havoc on your business’s reputation.

One issue that you might have to face is worker classification. Why is this important? Simply put you’ll probably have to pay taxes for a full-time employee, and you might end up paying for their benefits while also paying for time off and overtime. This can be a costly way to handle some of your work tasks. A cheaper way to handle these tasks may be to utilize independent contractors.

What’s the distinction? Simply put, you technically don’t control independent contractors. You can contract or assign work to them, but in order to qualify as an independent contractor they really should perform the work as they deem fit. Additionally, independent contractors are typically engaged in work independent from the tasks you assign to them, meaning that you are not their only source of income.

So what’s the best way to take advantage of the financial benefits of independent contractors? The best way is to create a contract that indicates a number of things, including that the contractor isn’t restricted in seeking other employment and that he or she is not subject to quality controls and direction. The contract should also specify a contractual rate rather than a salary or wage, and your business provides only minimal training. Avoid providing equipment and tools, and don’t mandate work times.  The contract should be clear that the worker, not the business, is responsible for paying taxes and providing applicable insurance.

Of course, you’re bound to wind up in positions where individuals are working for you but still aren’t employees, at least in your eyes. The State, though, is going to presume that they are employees unless you can establish that they’re not. So it’s best to be proactive in these matters to protect your interests as well as those of your business, especially given that misclassification can come back to bite you in the form of penalties and lawsuits.