6 minute read
The workforce and job market today are entirely different than that of the previous generation. Years ago, people would find a position with a single company that they would remain in until retirement. Today, it is increasingly easy to develop a flexible lifestyle when it comes to your work and life. More and more professionals are taking on contractor or consultant roles, which allows individuals the flexibility of controlling their own schedules and selecting their own clients.
The emergence of independent contractors can be useful to you as a business owner building your team. Hiring independent contractors can help you in reducing liability and provide you with savings in labor costs.
So why not just slap a label on all my employees and simply refer to them as independent contractors? Like many things in business, it’s not that simple. Misclassifying an individual as an independent contractor could have a number of costly legal consequences for you as a business owner.
According to the IRS, facts that provide evidence to the degree of control and independence fall into three main categories:
- Behavioral: Does the company control or have the ability to control what the individual/worker does & how the worker does his or her job?
- Financial: Are the business aspects of the worker’s job controlled by the payer? These include things like how the worker is compensated, whether the worker’s expenses are reimbursed, which party provides tools/supplies, etc.
- Type of Relationship: Are there written contracts or employee-type benefits such as insurance, vacation pay, pension plan, etc.?
There is no hardline rule; there is no magic number of factors that qualifies an individual to be classified as an employee or contractor. There are a number factors that are considered in determining the appropriate classification for individuals employed by your company.
If an independent contractor is discovered to satisfy the legal requirements for employee classification, you (as the employer) may be be required to:
- Pay back taxes and penalties for federal & income taxes, Social Security, Medicare, & unemployment
- Reimburse the employed individuals for wages they should have been paid under the Fair Labor Standards Act (possibly including overtime & minimum wage)
- Pay workers’ compensation benefits to any misclassified employees that were injured while on the job
- Provide employee benefits such as health insurance, retirement, etc.
If you are interested in more detail related to your situation, it is best to speak with an attorney.
Before deciding to classify your employees as contractors, or vice versa, schedule a Business Audit & Strategy Session with our office in order to best protect yourself & your business. You can reach us at (512) 925-7882. We look forward to working with you!
To the success of your business,
Keep up with Yasmine on social media! @startuplawyerlady
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice or if you would like to schedule a call with our office in order to best protect yourself & your business, you can reach Yasmine directly at (512) 925-7882 or book a meeting by clicking here.
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