Employee or Independent Contractor: Everyone is Watching

When you need help growing your business, it is natural to want to avoid the administrative headaches and financial burdens of Workers’ Compensation premiums, Social Security, Medicare payments, and other payroll taxes. While you might prefer to simply pay someone for their time and move on, the law has very specific criteria for how you must classify that help.

The Cost of Misclassification

Misclassifying an employee as an independent contractor might seem like a way to shift costs or eliminate them entirely. However, if your help is improperly categorized, you remain liable for those expenses and coverages. If a worker is injured or makes an unemployment claim and the authorities determine they were actually an employee, you will be “on the hook” for:

• Unemployment insurance contributions.

• Unpaid Workers’ Compensation premiums.

• Back Social Security and Medicare contributions.

This can quickly become a very expensive mistake for any business owner.

The “Control” Test

To maintain independent contractor status, you must be careful about how much control you exert over the person helping you. There are two major pitfalls to watch out for:

• Timing: You cannot dictate exactly when they are to be there.

• Method: You cannot tell them how to do the job.

If you control the “when” and the “how,” they are legally considered an employee. Protect Your Business Because “everyone is watching”— from tax authorities to insurance boards — it is vital to get this right from day one. Do not wait for a claim to be filed to find out you are in violation of the law. Work closely with your business law attorney and your accountant to ensure your help is qualified in the correct category.