Mr. Supra needed all hands on deck to get his business where he needed it to be. He hired workers on a temporary basis, trained them, classified them as independent contractors, and his contractors got to work.
The work, as it turns out, was more than he had originally considered.
However, his temporary team was prepared to handle it all, and did! But the hours they logged were enormous—to match the work completed, of course.
“That’s fine,” Mr. Supra said, “Once the work is completed I’ll have the opportunity to hire a full-time team!”
Unbeknownst to Mr. Supra, those independent contractors may not have been independent contractors, according to the state, IRS, or U.S. Department of Labor. And because they played an integral part in his business, and worked full-time hours, his business began receiving fines and issuance for back taxes owed on misclassified employees.
The above scenario is not as fictitious as you might believe—in 2015 alone, there were 8,954 filings related to wages and hours.
Not only are the fines costly, these filings tarnish a company’s reputation.
Read below to learn how you can avoid joining this staggering statistic.
Did you train your workers?
If, like Mr. Supra above, you implemented any training program to get your workers ready for the tasks ahead, these independent contractors are more likely employees.
Contractors are typically hired because of their expertise within an area, and thus do not require training.
What do your workers do?
Employers must assure that the contract reached with the contractor outlines the duties and expectations of the contractor, which must match the obligations of an independent contractor.
If, for instance, an independent contractor performs the same job as full-time workers, they are likely employees. Even in times of turnover where temporary workers are needed, they are classified as “temporary workers,” not “independent contractors.”
How do your workers perform the work?
While there are many factors that determine the degree of employment, consider the following when determining worker classification:
- Is the work completed at a location designated by the worker?
- Does the worker set their own hours?
- Is the worker paid a flat fee for their service?
- Does the worker receive direction or training from the organization?
- Can the worker incur a profit or suffer a loss from services
While no one factor is determinative, organizations that answered “no” to any of these questions should analyze the working relationship further and thoroughly document each of the factors used in the final determination.
Are your contractors working with other organizations?
Independent contractors are allowed to work with organizations as they please. If you have set expectations for an independent contractor to work solely for your business, they are considered an employee.
When should I reclassify an employee?
When you suspect an independent contractor should be reclassified to an employee, it is best to consult a professional. Conducting an unbiased investigation into the classification issue can deter unwanted visits from governmental officials and the raising of questions surrounding the internal investigation.
Note that some states, like New Jersey, have their own guidelines.
For an overview of what to analyze and consider when determining employee classification, visit the IRS.gov page for more information.
We’re here to help
Regardless of your intent, misclassifying employees carries hefty penalties. Making the determination between contractor and employee can be tricky. Learn the nuances and what you need to know to protect your organization in our resource: Protecting Your Organization from Worker Misclassification.
With BPHR, Balance Point’s HR Consulting Service, an HR Generalist will work with you to ensure your organization is in compliance so you can focus on more strategic tasks. Schedule a consultation to learn more.