Employee or Independent Contractor? Are You Confident…..

The Wall Street Journal’s recent article* regarding work classification is an example of the recent increase in enforcement by regulatory agencies.  The article highlights an announcement by the IRS introducing their Voluntary Worker Classification Settlement Program.  Simply put, the program allows employers who have or may have misclassified employees to correct the inaccuracy without immense fines.  Employers would only be subject to 10% of the tax liability for the past year without interest or penalties.

The fact that the IRS is taking steps to properly enforce worker classification shows that they realize the business landscape has changed.   More companies are moving to a flexible workforce, which includes contract workers.  Cal Osha is taking similar enforcement measures in enforcing their multi-employer worksite regulations. 

Guidelines of classification are unclear, yet some tips are:

• How much behavioral control does the employer exercise over the contractor?  An independent contractor is not subject to instruction by the hiring party;
• Is training involved?  A independent contractor is free to perform services in their own manner;
• How is the independent contractor paid?  Typically, the contractor is paid a flat fee for their services.  A regular wage or salary indicates that they are employees;
• Is there a contract for services?  In most cases, there is a contract in place for independent contractors that outlines the scope of work to be performed, a timeline, and a fee for services;
• Are benefits provided?  If yes, they are most likely classified as employees.

Keep in mind that the list above is not exhaustive and is provided only to give you an idea of whether you should investigate the classification further.  At EWS, we have a great deal of experience in working with our customers to properly classify their workforce and would be more than happy to assist you.  We can be reached via email at info@ewspros.com.  Comments, questions, and suggestions are always welcome.

*article title:  “Price of Reclassifying Workers.  Small Businesses Face Double-Edged Sword in Deciding to Put Contractors on Payroll”