One common mistake employers make is declaring someone an independent contractor when, in fact, they are actually employees. The same occurs the other way around, though that may not be quite as frequent. You should carefully consider the classification of your company’s employees and independent contractors to avoid potential labor law violations. Although your company saves money without the obligation of employer taxes for independent contractors, the cost of misclassification can be significant.
Here are a few factors that designate independent contractor status.
Freedom to decide their own schedule and location
Independent contractors can set their own schedules, decide when they want to work and even choose where they will work. Companies cannot dictate these things if they declare someone an independent contractor.
Flexibility in work methods
While you can assign tasks to independent contractors and set goals, the company cannot define how independent contractors complete those tasks. Workers have the freedom to decide how they get the job done and only provide the results to the company.
An independent contractor is not traditionally paid on a salary schedule like employees but instead under a contractually defined schedule based on achievements or progress milestones.
Type of service
Under tax laws, an independent contractor should provide services that are different from the company’s primary operations.
Ensuring proper identification of employees versus independent contractors protects your business from certain violations of labor laws and the costly penalties that can result. Consider these elements as you determine the proper designations for your employees and contractors.