Contractor or Employee? The Mistake That Could Cost You Six Figures
by Janea S. McDonald, PhD, PHR, SHRM-CP
janea@edgehrconsulting.com www.edgehrconsulting.com
Do you employ independent contractors? Are you sure you are classifying them correctly? When organizations misclassify workers as independent contractors rather than employees, the consequences can be severe for the individual and the organization.
Employees who are misclassified miss out on critical protections like minimum wage, overtime pay, unemployment insurance, workers’ compensation, and employer-paid taxes (Social Security/Medicare). Some studies estimate that 10-30 % of employers misclassify at least one worker.
Companies found in violation face stiff penalties, including back wages (including unpaid overtime), liquidated damages, potential personal liability for company executives, and tax and benefit liabilities from the Internal Revenue Service or state agencies. For example, in states like California, fines for willful misclassification can range from $10,000 to $25,000 per misclassified worker.
Here are some things to consider:
• Does the contractor have an EIN, LLC, or established business name?
• Do they provide their own tools, PPE, etc.?
• Who controls their schedule?
• Does the contractor have the right to refuse a project without penalty?
• Does the contractor set their own rates?
• Do they have the required insurance coverage?
These are just a few of the questions you should ask to determine whether someone is an independent contractor or an employee. E-mail me (janea@edgehrconsulting.com) for a complete checklist of things to look for – and red flags.
Even though it doesn’t relate to this article, you know I always encourage you to have a heart and care for people first – it will improve your business, I promise. Marcus Lemonis says, “people, process, profit” – in that order. I can help you with each of those. You can start with my EI Edge Workbook here and contact me for additional support.
Do you or your people need reminders about how to treat people and build effective relationships? I can help! Please email me or follow me on socials for tips (@janearayphd).
Please keep sending in your questions, as you’re not the only one experiencing workplace issues, and others can benefit from reading how to handle specific situations.
This is your chance to get expert advice and see your question featured! Please email me at janea@edgehrconsulting.com. Let’s work together to make people’s problems more straightforward to handle. Visit www.edgehrconsulting.com
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