Could your employees be misclassified as independent contractors?
As an employer in Ohio, you should be aware that an independent contractor agreement may not be enough to legally treat workers as anything other than employees. Over the last few years, government agencies have begun cracking down on businesses where workers defined as employees by the Fair Labor Standards Act have been misclassified as independent contractors.
According to the Internal Revenue Service, generally speaking, independent contractors are in control of their work schedule and the tasks that they accept. On the other hand, as an employee, the work that is done is controlled by an employer who designates all facets of the person’s work.
When determining whether a worker is an employee or an independent contractor, according to Forbes, “economic realities” are used. There are six basic factors that are considered by the courts and the United States Department of Labor:
- Whether or not the work being performed is essential to the business
- Whether or not the work is permanent or temporary in nature
- How much freedom of initiative and judgment the worker has in the position
- Whether the worker can experience profit or loss in the business
- What the worker has invested, if anything, in supplies, facilities, equipment, etc.
- Whether the worker or the employer has control of the work and to what extent
Additionally, there are many other considerations involved in ascertaining whether a worker is an actual employee or an independent contractor. Decisions are usually based on the characteristic and the facts of individual situations.
If it is determined that a misclassification has occurred, you as the employer become responsible for back wages, federal and state income taxes, Social Security and Medicare withholdings and other federally regulated duties of an employer. Business owners can protect themselves from worker misclassification by becoming familiar with the employment guidelines outlined by the IRS, the USDOL and the FLSA. Reviewing the USDOL’s misclassification initiative may also prove helpful in avoiding costly mistakes.