Independent contractor misclassification is a mistake all responsible companies need to avoid. Despite potential penalties and fines, employers will often go out of their way to convince themselves that they can classify a certain worker as an independent contractor and not as an employee. When it comes to the Fair Labor Standards Act (FLSA), the federal government does not want to hear your company’s excuses. They demand that everything is done by the book, and, and Total HR Management can help.
Given business payroll tax consequences combined with the health care reverberations of the Affordable Care Act, sometimes being able to slide a few employees into the Independent Contractor classification seems like a great idea. As a professional employer organization with a proven track record of helping our client companies avoid this avoidable mistake, Total HR Management wants to assure you that it’s anything but a great idea. Independent contractor misclassification can lead to major issues with the IRS in specific and the federal government in general. Why would you ever want to open up that can of worms?
Beware Independent Contractor Misclassification
In a great article in The Practical Employer column of Workforce, attorney Jon Hyman, a partner at Meyers, Roman, Friedberg & Lewis in Cleveland, dishes out 12 myths that employees tell themselves to justify independent worker misclassification by their employers.
We have decided to flip Hyman’s article on its head by applying these myths directly to the employers. Not wanting to push the envelope to the breaking point, we chose 8 of the 12 myths and transformed them into 8 fibs that employers tell themselves to justify independent contractor misclassification.
8 Fibs About Independent Contractor Misclassification
Fib 1: Since the person is under independent contractor under one law, he or she is an independent contractor under all other laws.
Response: Even if they are a legitimate independent contractor under one law, they very well could still be an employee under other laws.
Fib 2: I sent the individual a 1099 tax form, and this now officially makes them an independent contractor.
Response: Sending an employee a 1099 tax form does not make them an independent contractor or change their employee status.
Fib 3: The individual signed an independent contractor agreement. Such an agreement signed between a company and a person is valid.
Response: Signing an independent contractor agreement does not affect an individual’s official employment status.
Fib 4: The person is not on my payroll so they are not my employee.
Response: A person do not have to be on your payroll to be considered and classified as a full-time employee.
Fib 5: The individual has their own employer identification number (EIN) or they have paperwork stating they are performing services for my company as a Limited Liability Corporation (LLC) or other business entity.
Response: An EIN or paperwork stating that an individual is an LLC or other business entity does not make them an independent contractor.
Fib 6: The individual teleworks, works off-site, or works remotely and is never in the actual office. They clearly are an independent contractor.
Response: People working off-site or remotely from home can be employees. Being bodily present in the office is not an official designation.
Fib 7: This person has been working for my company as an independent contractor for years. Why would anything change?
Response: Past designation as an independent contractor does not mean a person still falls under the independent contractor classification.
Fib 8: It is established practice in my industry to classify such workers as independent contractors. This is simply the way it’s always been done.
Response: Just because your common industry practice claimed one thing before is not an excuse today to misclassify under the FLSA.
Total HR Can Help Your Company
Given the extent of the potential penalties and fines, your company wants to avoid the mistake of employee misclassification. After all, you don’t want a silly fib to come back and cost your company an arm and a leg. As a PEO, Total HR Management can help your company avoid independent contractor misclassification. To learn more, please call (800) 975-5128 today to set-up an HR audit.
No Legal Advice Intended: This blog includes information about legal issues and legal questions. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. You must not rely on the information on this website as an alternative to legal advice from your attorney or other professional legal services provider.