HR Insights with Ali: Employee or Independent Contractor? Know Your Classifications
Posted on 9/6/2017 by Ali Oromchian, Esq.
When you’re not sure how to classify someone who is joining your practice - especially if he or she is there on a temporary basis, for example, the inclination may be to simply classify them as an independent contractor for simplicity. The reality is that there are very strict stipulations that must be met for someone to truly be an independent contractor. Even more alarming, if you misclassify someone as an IC when he or she is actually an employee, you may be subject to significant financial retributions of up to 3 years. This is because you must withhold income taxes, comply with meal and rest breaks, and pay overtime for employees, but not for Independent Contractors (IC). Additionally, the IRS and Department of Industrial Relations (DIR) are extremely unforgiving for violations of taxes and labor laws, such as meal breaks and overtime. This is because they are aware that some employers may purposely misclassify employees to cut corners—and costs. This means that you may have to back-pay overtime, penalties for non-compliance, and the waiting time fees associated with this back-pay.
Generally speaking, in order to determine someone’s status, you must analyze your relationship with them and determine the level of control that your practice has over their work. Questions fall into general categories:
1. Behavioral control: Does your practice control, or have the right to control, how the work or task is performed? This includes processes and scheduling.
2. Financial control: Are the business aspects of the worker’s job controlled by your practice? (This includes issues such as whether the worker is financially dependent on the Practice, whether expenses are reimbursed, who provides tools and equipment, etc.)
3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.) provided to the worker? Will the relationship continue and is the work performed a key aspect of the business? What is the estimated end date of their contract (should never extend beyond 1 year)?
If you are unsure how your worker(s) should be classified, it is imperative that you consult with legal counsel or an HR professional to assist you with the proper classifications.