The IRS and State Governments have both stepped up their enforcement action against business owners who misclassify employees as independent contractors. One friend of ours was just fined $150,000 for Worker’s Comp Fraud stemming from a misclassification of employees as Independent Contractors. Knowing this, it is imperative for you to know the difference when it comes to your hiring practices.
In general, these are the three characteristics in determining employment status:
Behavioral control – whether a business directs or has control over how the work is done, either through providing instruction, training or by other means of controlling how a person performs work.
Financial control – whether a business directs or has control over the financial and business aspects of a worker’s job.
Relationship type – how a worker and the business owner perceive the working relationship.
According to the Small Business Administration, a worker is likely to be classified as an employee if he or she:
A worker that can be classified as an independent contractor will be one that:
Employers face stiff financial penalties for misclassification of workers, including fines, interest and penalties. If the misclassification is found to be willful, there can be even harsher penalties.
To have us take a look at your employment practices, contact a Creative Business Lawyer® today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit. Normally, this session is $1,250, but if you mention this article and we still have room on our calendar this month, we will waive that fee.