Have you hired an employee, or have you hired an independent contractor? An employee must be paid overtime for work done over 40 hours, their taxes must be withheld by their employer, and an employee has rights guaranteed to them by several federal and state laws governing employment. Misclassification of an employee can lead to serious consequences for employers. An employee who was misclassified as an independent contractor might request unpaid overtime and liquidated damages, which could easily add up to tens of thousands of dollars in damages. Failing to withhold an employee’s taxes can lead to the IRS auditing your business and assessing civil penalties. Additionally, if you have misclassified your workers as independent contractors and interfered with their ability to form a union or even discuss wages, you could be investigated by the National Labor Relations Board. An employee misclassification attorney can help you comply with state and federal regulations regarding the treatment and classification of employees, or if there is already litigation or administrative investigations an employee misclassification attorney can represent you in court or in administrative hearings.
Employee Classification Compliance
Whether you have an employee or an independent contractor can be a difficult question to answer. For the IRS, the main question they want to know is how independent is the contractor, really? For example, let’s take the image of the construction contractor hired by a private homeowner to do work on their house. The homeowner does not dictate how the contractor should do their job, they merely have a desired outcome and leave it for the contractor to do the work. In that case, the contractor would have complete oversight over how the work should be done, when it should be done, and the methods that should be used to make sure the work is done. By contrast, an employee of a construction firm might be told what kinds of materials need to be used for the job, what kinds of techniques should be used, and what the schedule should be for the job. In that case, the employer trusts the employee to have the requisite skill to perform the job but leaves the management of it to themselves. If you’re a transportation company and you have contractors who perform jobs for you, and all you do is tell them where the product needs to go and when it needs to get there, that’s probably an independent contractor. For the Department of Labor’s Wage and Hourly Division, the National Labor Relations Board, and their equivalent state agencies, there are additional factors that are considered, but like the IRS, independence is considered the most important factor. One of those standards is the ability of the contractor to make their own profit independent of the contract. For the construction contractor, the homeowner is only one of many clients, and so they have plenty of opportunities to find profit outside of that job. If you require your contractor to be exclusive to you and your company’s needs for the duration of the contract, it could be a point in the direction of employee and not contractor. These are only two of the elements that are considered when it comes to misclassification. For a full evaluation of your business, you should contact an employee misclassification attorney and make sure that you have not misclassified any employees before anything happens.
Employee Misclassification Defense
Defending you and your company from accusations of misclassifying employees requires similar analysis as helping you comply with federal and state regulations. It’s important to find what basis you have to say that they are a contractor and not an employee. For instance, say you are a transportation company and your drivers accuse you of mislabeling them. A potential defense could be that you did not supply them with a vehicle. Part of the criteria for determining if they’re an employee or contractor is whether they supply their own tools and equipment to do the job. If you are accused of misclassifying employees, be sure to contact an employee misclassification attorney.
There are stiff penalties for misclassifying an employee. Whether you’re currently involved in litigation because you’ve been accused of it, or are trying to make sure you’re compliant with the relevant laws, it’s important to consult with an employee misclassification attorney.