Leveraging independent contractors may seem like a perfect way to avoid many challenges of being an employer. However, they can also open the door to costly liabilities, penalties, and fines if not classified correctly. The Obama administration has increased efforts to find and correct worker mis-classification, so there is now additional funding for the Department of Labor (DOL) and more investigators working to find non-compliant employers.
To determine if you have properly classified employees as independent contractors, there is no one simple checklist. However, by answering these three questions to measure the degree of control you have with an employee, you can determine if a closer look into their classification is necessary.
1. Do you control the manner and method used to perform the work? If you are providing detailed instructions on when and where to work, and evaluating the employee on the process of performing the work, that employee is likely NOT an independent contractor.
2. Do you control the economic aspects of an employee’s job? An independent contractor invests in their business so they have the tools/equipment, training, etc. needed to perform their job, and they have an opportunity to make a profit, or take a loss, based on the investments they put into their work compared to the fee charged for work complete.
3. What is your agreement with the employee? The type of relationship you have with the employee should be based on a written contract, for a specific project or time period. Additionally, as the employer, you should not be providing benefits to an independent contractor.
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