Many businesses hire workers as independent contractors to save money. For one, they don’t have to pay any employer taxes. And contractors’ status makes them ineligible for the benefits full-time employees receive. But as an executive or business owner, you must make sure you classify contractors correctly. Failing to do so could cause your company to face penalties.
What is an independent contractor?
Independent contractors often fulfill temporary roles for businesses. While they may work on specific projects or tasks, they do so under their control rather than their employer’s. To meet the criteria of an independent contractor, a worker will likely:
- Have full control over their schedule and work location
- Have a definite period they will work for your business
- Rely on their own methods of work rather than company procedures
- Retain the ability to seek out business opportunities outside your company
- Receive a flat-fee payment instead of an hourly wage or salary
Your company may hire workers on a contract basis while maintaining a significant level of control over their output and methods. And your contractors may also receive extensive job training or have a contract which runs for an indeterminate length. In these cases, they would likely qualify as employees instead.
The penalties for misclassification
If your business misclassified contractors, it could end up facing serious tax penalties. And in Connecticut, it will also have to pay a fine of $300 per day for each contractor intentionally misclassified. Your company may be able to reduce its financial burden by taking steps to reclassify these employees. Doing so also reduces your business’ chances of legal damage through employee claims.
Classifying employees as independent contractors may seem like a smart cost-cutting measure. But doing so can have serious legal and tax consequences that make your business spend more in the long run. Working with an employment attorney can help your company determine its best options moving forward.