Employee misclassification is becoming an increasingly big deal for government and an equally bum deal for businesses that don’t take it seriously enough. Back in 2000, Microsoft paid $97 million , plus legal fees, in a benefits dispute with its long-term temps. More recently, FedEx shelled out $228 million . Of course, there’s also Uber, which has been in multiple disputes, including over whether drivers were independent contractors (as Uber maintained) or employees (as the law determined ).
In short, this stuff matters.
10 Moves That Increase Your Likelihood of Ending up in Hot, Expensive Water.
1. Letting Contractors Determine Their Own Classification
Businesses have the burden of responsibility here. Do your due diligence with each worker to determine their status and whether they are contractors or employees. Subsequently, this will determine whether they should be paid via W2 or 1099. If you need support, our worker classification quiz can help you sort out where your workers stand. When in doubt, engage a partner with the expertise to guide you through it. It’s worth investing whatever time, attention, and costs needed to do it right.
2. Failing to Stay on Top of Regulatory Changes
Similar to the above, if the law says it’s not okay, you will be held accountable—no matter how long you’ve done it without problems. “We’ve always done it this way” simply does not hold up as a viable defense. The best way to manage this is to have someone available to dedicate the resources and time to researching and monitoring all legal changes or to engage a partner who is doing all of that for you. You can determine which is right for you based on how often you have hiring needs and whether it’s worthwhile for you to dedicate internal resources to the task or to outsource it.
3. Failing to Properly Insure Workers
Insurance always represents a bit of a gamble. You may never end up using it, in which case, the cost can seem pointless. On the other hand, when something goes wrong, it can be the difference between a minor inconvenience and the end of your business. You’ll be glad you took the extra effort and had the backup insurance in place. That goes double when there’s a lot of expensive equipment around.
4. Thinking Hiring an Agency Ends All of Your Risk
Engaging a partner company with the right expertise is hugely beneficial and will help ensure that your business is on the up and up. But, co-employment risk still exists. It’s still in both you and their best interest to know and implement the rules around worker classification.
5. Following The Industry Practices
Take a lesson from sibling dynamics here: The kid who gets caught doing the crime does the time—even if the sibling does it all the time undetected. Just because you and your associates haven’t been caught with misclassified workers doesn’t mean you won’t be eventually. Follow the laws, adjust as they change, and you’ll be able to sleep well at night.
6. Downplaying The Risk
The government has a lot of money at stake here. It’s in the news a lot for a reason and it’s not going away. Don’t ignore the rules because the government isn’t ignoring them either . If you think they’re not coming for you and get lackadaisical, it will eventually catch up with you.
7. Assuming Day Rates Are Compliant With The Law
Although common in many industries, day rates aren’t always as simple as they seem. It takes a lot of time and a complex system to monitor day rates and other compliance loop holes in every city and state. Someone on your team needs to be paying attention or you need to have a partner that is.
8. Overlooking Details of Exempt vs. Non-exempt
Workers are often called exempt when they should actually be paid hourly according to federal, state, and (sometimes) local law. Again, it’s hard to keep track of. Either invest in doing worker classification right the first time or be ready to cut a premium check to the IRS.
9. Thinking This Process is Clear Cut
The government provides guidance, but rules are ever-changing and never 100 percent clear. Asking a few questions and counting the check marks in the 1099 or W2 columns isn’t enough to ensure you classify someone correctly. If you are not an expert, you really need a partner. Engaging someone with specific industry experience who has endured audits is invaluable.
10. Forgetting That Courts Have a History of Siding With The Worker
The system is heavily weighted on behalf of the worker and the burden remains on the employer to do things right.
Yes, it’s important. Yes, it can be a pain. But there’s no need to cut the cord on independent contractors. Keep your worker classification processes at the front of your business priorities or hire a team that can handle your contingent workforce from onboarding through payrolling.
Interested in learning more about worker classification? You’re in luck, we’ve got a whole series here .
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