One of the most common questions that I receive from employers is whether to classify one of their workers as an independent contractor or employee. It seems like a simple question. However, misclassification of employees as independent contractors is a common problem with costly results.
The most common reason I hear from employers as to why they have classified an employee as an independent contractor is because they think it is “easier.” While that may be true in some cases in the short term, the long-term ramifications of misclassification are substantial.
Employers may be asking who cares about how workers are classified. The answer is the Georgia Department of Labor, the U.S. Department of Labor, the IRS, benefits plan providers and insurance carriers, just to name a few. For example, employers that have misclassified employees as independent contractors may have tax issues such as failing to make the requisite tax deductions or pay unemployment taxes.
Furthermore, failure to correctly classify a worker as a employee could result in serious issues if that employee files a worker’s compensation claim, and the employer has not paid the premiums to cover that employee. Finally, wage and hour audits or lawsuits could result based on a failure to pay minimum wage or overtime.
While the law provides for various tests to determine classification , there are some general guidelines that transcend these tests.
The first of these is the intent of the parties and any agreements that may reflect their intent.
The second is the level of control the employer exerts over the means and methods of the employee’s work.
The third is the dependence of the employee on the employer for their livelihood. The fourth is whether the employee is integrated into the core of the employer’s business.
Employers that have questions regarding classification should consult an experienced labor lawyer.
Sarah Phaff is an employment law attorney at Constangy, Brooks & Smith LLP.