4. The Continued Expansion of the “Gig Economy” and the Misclassifying of Employees as Independent Contractors
As a solo practitioner, I often rely on independent contractors or freelancers to keep my business afloat, usually because the cost of hiring and paying full-time employees’ salary, taxes, benefits, bonuses, as well as funding training might be too substantial of a financial burden to bear. Our current labor market is overrun by short-term contracts or freelance work, as opposed to permanent, full-time jobs.
Although utilizing independent contractors as a way to keep overhead expenses low and profit margins high is understandable, an employer acts at their peril if they misclassify an employee as an independent contractor. If you have incorrectly classified a worker an independent contractor as opposed to an employee, you may be responsible for paying back taxes you never withheld, providing benefits and reimbursing the worker for wages required by the Fair Labor Standards Act. In fact, I suspect the IRS and the Department of Labor will continue to target and punish small business owners who purposely misclassify workers to avoid paying overtime, payroll taxes, and other employee-related expenses.
To side-step these mistakes, employers should pay careful attention to how employees are classified. Although independent contractor status does not have a fixed definition by all government entities, the general guiding principle in determining whether an individual is an employee or independent contractor is the degree of control the owner exercises over the person’s work. The EEOC has issued guidelines for determining if a business owner has an employment relationship with a worker, and the IRS uses a 20-factor test to determine employee/independent worker status. See EEOC, Compliance Manual, 915.003, Section 2- III(A)(1)
Once you find that an employee is an independent contractor, it may be appropriate to draft and sign an independent contractor agreement.
Read the full story at 5 Employment Law Trends to Watch in 2018