Worker Misclassification: Employees vs. Contractors

There are many points of focus for business owners and managers in all industries. When we note on our employer-focused website at Rajkovich Williams Kilpatrick & True in Lexington that we routinely handle employment matters "from pre-hire through termination and all issues in between," we are signaling a broad universe of considerations.

One of those is employee misclassification. A recent Forbes article notes that misclassification is a distinct and growing problem. This is true even for the most careful employer acting in good faith to properly classify its workforce. The difference between an employee and independent contractor may seem insignificant on the jobsite; however, there is a sharp legal distinction between the two.

Issues surrounding misclassification are many and not easily summarized. It is advisable to timely consult with a law firm that routinely handles diverse business matters for employers.

As the Forbes article notes, "independent contractors cannot be engaged or treated like traditional employees." This simple statement covers a number of potential pitfalls.

Employers have increased duties regarding the withholding and payment of various taxes for employees (Social Security, unemployment and so forth), as opposed to independent contractors who are typically responsible for their own tax liability.  Failure to timely withhold and remit these taxes can result in personal liability for management employees. Where an employer is found to have intentionally misclassified an employee, criminal charges are possible.

Another example is workers' compensation. Even though a worker is properly classified as a contractor, there can still be liability for the employer under its state's workers' compensation laws.

Employers must be aware that it is the nature of the relationship, not the title given to it by the employer, that determines the proper classification. Calling an employee a "contractor" means little if the relationship is actually one of employer-employee.

An experienced business law firm can help a business can advise employers on appropriate company policies, record keeping, relevant contractual language, and the duties being performed by given employees or contractors.

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