Engaging independent contractors instead of hiring employees is enticing… no overtime pay, benefits, tax withholdings, FICA obligations or legal liability for certain claims.
If you misclassify a worker, however, the penalties are great — back overtime pay, interest, liquidated damages, federal income tax liability, FICA contributions, IRS penalties, and more.
There are no clear, bright-line tests, and you cannot determine status based upon title. It is about who has control.
If your worker does the following, the DOL may try to treat him or her as an employee:
- Provides services that are integral to your business;
- Has a more permanent, than short-term, arrangement;
- Uses your tools/equipment and works in your facility;
- Works exclusively for your company;
- Does work largely controlled by the company;
- Has little or no opportunity for profit and loss; and/or
- Exercises little or no initiative, judgment, or foresight.
If you use independent contractors, take the time now to carefully analyze those positions. If you have concerns about any classification, we are glad to help you work through those issues now, before the DOL comes knocking.