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Are You Misclassifying Your Employees? Beware of the Risks

Employee or independent contractor?

That’s the question countless Middle Tennessee employers are forced to ask themselves.  But sometimes the answer is not clear-cut, because the rules governing worker classification are notoriously complex.

As a responsible employer, however, it’s still your job to follow a proper vetting process and ensure you are correctly classifying independent contractors.  If one or more of these criteria applies to your contractors, they may actually be improperly classified (according to IRS guidelines):

  • the employer has control over the means and/or methods of accomplishing work;
  • the employer furnishes tools, equipment and/or materials for the worker;
  • the worker is not allowed to work for other employers;
  • the worker has agreed to work for the employer for an indefinite length of time.

These general criteria are no substitute for professional legal advice.  If you suspect you may be misclassifying workers, be safe and consult your attorney – there’s no mercy if you’re doing it incorrectly.

More and more, federal government agencies are cracking down on companies that violate worker classification guidelines.  The Internal Revenue Service (IRS) has strict regulations about employment classification – specifically, how much control the employer has over the way work is performed.  To ensure compliance, the IRS is increasing on-site audits.

At the state level, lawmakers are also drawing a line in the sand.  Pennsylvania, Wisconsin and California are among those that have enacted worker misclassification laws, imposing severe penalties on violating employers.

Given the risks, why would an employer classify a true employee as an independent contractor?  One word – money.  Classifying workers as independent contractors helps a business significantly reduce employment-related expenses by:

  • eliminating Social Security, Medicare and unemployment taxes;
  • working around overtime and anti-discrimination regulations, as well as minimum wage levels;
  • avoiding costly fringe benefits, such as health insurance, vacation pay and sick pay.

But while it may be tempting to save money this way, it’s also dangerous.  If a business owner is found to have misclassified employees, the IRS will collect delinquent employment taxes and may also impose severe financial penalties.  Misclassification can also lead to a host of other unpleasant consequences, including problems with benefits eligibility, work authorization and ultimately the company’s reputation.

Temporary and Contract Staffing Services – A Smart Way to Prevent Worker Misclassification

If you have work to be performed which is temporary, project-based or otherwise outside of your core business, consider using temporary or contract staff – as opposed to independent contractors.  Wood Personnel’s temporary and contract employees can help you complete critical projects, access specialized expertise and avoid the pitfalls of worker misclassification.  Contact Wood Personnel today to learn more.