Crackdown on Misclassifying Employees as Independent Contractors

i found you!Classifying employees as independent contractors is a hot button with The Department of Labor. It is anticipated that the DOL will ramp up this scrutiny. If workplace  “Right To Know” legislation, that could require companies to provide workers with written notice of their classification, is passed, that would likely further enhance DOL scrutiny.

Businesses attempting to manage their healthcare expense and work within the FTE parameters of PPACA may face greater temptation to classify employees as independent contractors.

In today’s market where hiring independent contractors is often the best solution it’s important to understand when someone qualifies as an independent contractor.

A fundamental criteria of determining independent vs. employee status is “control” over the individual.

Below are some guidelines to help you avoid misclassification, fines and penalties, Independent contractors typically:

  • Operate under a business name.
  • Provide their own equipment/tools.
  • Advertise their services.  Make copies of their marketing materials and keep on file.
  • Make their own hours vs. employees who are trained and hours set by the company, their efforts directed by a company manager. You can set deadlines with an independent contractor but be careful with strict, tight deadlines that could give the appearance of requiring full time effort.
  • Have other clients.
  • Have a Federal ID (FEIN) and provide to you rather than their SS number.

Some Do’s and Don’ts

  • Do require that independent contractors invoice you for their services.
  • Do issue 1099s.
  • Don’t put them on an auto pay schedule (same day of week/month) that could give an appearance as “payroll”, rather pay them per invoice terms.
  • Don’t provide them their own office or equipment unless absolutely necessary.
  • Don’t reimburse them for items like gas or phone.
  • Don’t ever refer to them as employees of your company.

Few situations are identical and often there can be a fine line between employee and independent contractor, but if you follow these guidelines you will be on your way towards mitigating your risks.

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