How to Avoid an Independent Contractor Misclassification Audit

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MBO Partners provides excellent advice on how to avoid a misclassification audit:

Improve independent contractor satisfaction at your company and minimize the risk of a misclassification audit with these five tips.

1. Conduct an Internal Audit of Worker Classification Practices

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 engaged in the past have federal tax ID numbers.

Are you able to prove that all of the contractors you’ve engaged qualify as independent workers? Investigating your practices can help identify gaps and areas for improvement before a regulatory agency steps in with an audit of their own.

2. Create a Centralized Program for Independent Contractor Engagement

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 a centralized program for engaging and managing your independent workers. Program policies should be understood and enforced across the board, and have the flexibility to evolve as needed. Consider possible barriers to implementing a program, and develop strategies to overcome obstacles for a smoother adoption process.

3. Properly Classify Independent Workers

The federal government, state government, and government agencies all apply different laws and tests to determine worker 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, it is still important to be aware of these laws when assessing the classification status of workers.

In general, it is good practice to keep records of documents that support a classification decision such as a business or professional license, business cards, or insurance certificates that can be used as proof of self-employment.

4. Always Use a Written Contract

Using a written contract for all independent contractor engagements not only helps to clearly define your working relationship, but it also helps to verify classification in the event of an audit. In addition to outlining the scope of work, defining the communication process, and specifying payment terms, you may want to consider including additional safeguards such as explicitly stating the person you’re engaging with is an independent worker, that they are free from control, and that they have insurance.

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

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