Correctly classifying the members of your workforce is essential. Failing to do so can get you in some legal hot water, particularly if you label a worker an independent contractor when they should be an employee.
Companies can’t just decide to call a professional an independent contractor because that’s what suits them best. Instead, specific rules have to be followed.
If you want to figure out which of your workers are legally independent contractors, here’s what you need to consider.
One of the most significant differences between contractor and employee arrangements is how much control the company gets to exude over the worker. If an organization can control what the worker is doing and how the person handles their job, they are an employee, not a contractor. However, if the business is only defining the desired result, and leaves the remainder of the decisions in the worker’s hands, they can be classified as a contractor instead.
Other factors also dictate which classification is correct. For example, if the company controls the business aspects of the worker’s job, that worker is an employee. In many cases, if the worker is performing tasks that align with the company’s core business scope, they can’t be considered an independent contractor.
The permanency of the relationship also needs to be considered, as this helps to define the true nature of the arrangement. Additionally, whether there are contracts for the work or if the person is receiving certain benefits, like retirement or paid time off, is also part of the equation.
There are financial and administrative benefits of having a worker classified as an independent contractor instead of an employee. For example, you aren’t liable for employment taxes, unemployment costs, workers’ compensation, and similar expenses if the worker is an independent contractor. Additionally, you don’t typically offer benefits to independent contractors and don’t have to manage them as part of your payroll. As a result, many businesses seek out independent contractor arrangements when possible to help reduce risk and lower costs.
However, that doesn’t mean that you can choose to list an employee as an independent contractor. There can be severe penalties for misclassifying workers. For example, the IRS could determine that you owe back employment taxes. It could also open the company up to a lawsuit by the worker. If they should have been provided benefits that they didn’t qualify for due to the misclassification, they may seek compensation.
Making the Decision
In some cases, whether a worker qualifies as an independent contractor or employee is clear. However, if you can’t seem to decide, you can complete an IRS Form SS-8. With that, the IRS will review the situation and make an official determination regarding the worker’s status.
This process can be lengthy, taking a minimum of six months in most cases. However, it can be worth doing if your company genuinely can’t figure out which path is correct.
If you would like to learn about options that can help you manage all of your personnel needs as simply as possible, the staff at The Advance Group wants to hear from you. Contact us today and see how our worker classification expertise can benefit you. If you’re looking for great new talent for your workplace, check out our Talent Showcase!