How to Avoid an Independent Contractor Misclassification Audit

Audit in red with tax forms in background

 

MBO Partners offers advice on  how to avoid a misclassification audit including these recommendations:

1. Conduct an Internal Audit

Conducting an internal audit can provide you with an in-depth understanding of your current classification practices and whether or not they are compliant. Look for records of services performed by contractors, check to see if you have contracts on file for your independent engagements, and confirm if the contractors you’ve hired in the past have federal tax ID numbers. Are you able to prove that all of the contractors you’ve hired qualify as independent workers? Investigating your practices can help identity gaps and areas for improvement before a regulatory agency steps in with an audit of their own.

2. Create Guidelines for Hiring Independent Workers

Your business may have a worker classification policy in place, but is it followed consistently? If not, you could be at risk. Work with your HR team or hiring managers to develop guidelines for hiring and managing your independent workers. Create policies and plans to ensure these guidelines are enforced across the board, and allow your policy to evolve as needed. Consider possible barriers to implementing these new rules, and develop strategies to overcome obstacles for a smoother adoption process.

3. Make Sure Independent Workers are Properly Classified

The federal government, state government, and government agencies all apply different tests to determine employee classification. These tests lack uniformity, so just because a worker complies with one test, doesn’t mean they’ll comply with another. While this complicates the vetting process, you can still use these tests as guidelines to create a questionnaire or checklist to assess potential workers. If you don’t see issues after your investigation and move forward with hiring, it’s good practice to keep records of your checklist as well as supporting documents like a business or professional license, business cards, or insurance certificates that can be used as proof of self-employment.

Read the full story at  How to Avoid an Independent Contractor Misclassification Audit | MBO Partners

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