Employers often classify workers as independent contractors without paying attention to different markers that the authorities may zero in on. An experienced business lawyer, however, should be able to help employers avoid mistakes in this area.
The decision of an employer to classify a worker as either an employee or an independent contractor can have legal implications — with the IRS, the Department of Labor, or the state unemployment insurance department. The penalties for getting the classification of a worker wrong can be costly. And yet, often, employers spend little time contemplating these choices. When an employer retains an attorney experienced in business law, however, they are able to receive input on their employee relationships from one month to the next, and take advantage of advice on how to classify them.
Having the constant counsel of a business lawyer can help employers avoid the following worker classification mistakes.
Retaining workers without contracts
A worker providing a one-time service like window repair wouldn’t require a contract. Workers who provide regular services to an employer over extended periods of time, however, do require contracts. Many employers, though, neglect to put their long-term relationships with their independent contractors down in writing. Government authorities expect employers to produce such contracts, ones that expressly state that they don’t withhold taxes or offer benefits. In addition, in the event of a disagreement in which a worker claims they are a full- or part-time employee, having nothing in writing that classifies them differently could weaken the employer’s case. A business lawyer can help employers make sure they have contracts for every worker they hire.
Classifying the same kinds of workers, differently
Employers often have different people doing work that is practically indistinguishable, but end up classifying some of those workers differently. Some salespeople may be employees, for example, but other salespeople may be independent contractors — with no clear reason for the difference. The authorities often look for such treatment as telltale signs of misclassification. Business lawyers, however, are trained to help employers avoid this mistake, and navigate employment classification correctly.
Making a mistake providing workers with work-related tools
Employers sometimes provide their independent contractors with all the tools they need to work. Independent contractors are usually professionals who bring their own equipment to work, however. The authorities tend to not buy it when employers provide their workers with tools and equipment, but still characterize them as independent contractors.
Making a mistake when reimbursing workers
In general, when employees work overtime, they are paid extra. When they spend their money on business expenses, they are reimbursed. If they work late, they get dinner at work, and a free taxi ride home. Independent contractors, however, are supposed to offer a service in return for an all-inclusive price.
Employers are sometimes generous and treat their independent contractors in these ways even when they don’t have to. The IRS and other authorities, nevertheless, may take such kinds of treatment as signs that an employer sees a worker as an employee. A business lawyer should be able to look at such incongruities, and help employers treat their workers in ways that are consistent with their classifications.
Compensating your workers by the hour
In general, independent contractors are paid by the job, and employees are paid by the hour. You may hire an independent contractor to keep your office building clean, for example, or install heating in your office. Such a professional wouldn’t generally be paid by the hour — they would simply be paid a fixed dollar amount for completing a job. Many employers, however, make the mistake of characterizing workers as independent contractors but still paying them by time spent on the job the way employees would.
Certainly, in some instances, independent contractors can be paid a time rate. Lawyers billing by the hour are an example. It can be complicated to prove to the authorities that an hourly worker is an independent contractor, however. When you have alternatives, your business lawyer should be able to give you advice on how to pay by the job.
In general, classifying workers as independent contractors requires the presence of these and a number of other treatment markers. They help convince the authorities of the appropriateness of such classification. It’s important to seek the guidance of a qualified business lawyer. They are able to judge your relationships with your workers in the ways that the authorities are likely to see them, and point out when inconsistencies appear.
Employers often need to work with lawyers on an ongoing basis to evaluate their worker relationships. An experienced business lawyer should be able to look at areas that commonly trip employers up, and help you.