From the New York Law Journal, Brian Arbetter and Samantha Beltre offer guidance on how to minimize risks of engaging with independent contractors. They write:
Where an employer wants to label its engagement of services as independent contractor in nature, it should ask itself the following questions. Is the person going to do things that are not similar to what others who are employees do for the same company? Will the person have autonomy to the point of using their own equipment and setting their own time spend and determining virtually all aspects of how they complete the assigned task? Will the person be paid for the task completion or at a specific set hourly rate that is customary in their industry for outside service providers? Will the service provider provide the company with an invoice for services rendered, including costs incurred?
There are other questions that can and should be asked. However, if an employer cannot answer yes to all of these, then it is very likely that classifying the individual as an independent contractor is bad idea legally.
Where a U.S. employer misclassifies someone as an independent contractor, the legal costs can be significant. First, from a wage and hour standpoint, such an employer can be liable for back wages that the individual would have been entitled to be paid if they had been an employee under law. Among other things, this typically includes overtime pay, as well as interest and statutory penalties (vary by state). The statute of limitations typically reaches back for three years.
Second, from a tax standpoint, such an employer is liable for unpaid taxes on the wages paid to the employee. Often, this includes not only the employer share of such taxes, but the withholdings that should have been made for the employee’s taxes. This is because usually when a company misclassifies someone as an independent contractor, it does not withhold any taxes but instead issues a U.S. IRS Form 1099 reporting the income for the individual to pay all taxes. As with wages, there are often interest and penalty assessments that accompany unpaid tax violations.
Finally, and especially significant in today’s political world under U.S. President Donald Trump, to the extent that the individual does not possess proper legal authorization to perform work in the United States, such an employer can be guilty of civil and criminal immigration law violations.
For all of these reasons, the best advice is that if a company has any doubts, it is often better to err on the side of classifying and treating someone as an employee rather than an independent contractor. The relevant U.S. enforcement authorities are putting more and more attention on this topic today. If a company has not recently analyzed its practices in this regard, a legal audit is highly suggested.
Read the full story at Employer Tips for Minimizing Risks of Independent Contractors | New York Law Journal