Can An Independent Contractor Save A Company Money Or Leave The Business Vulnerable To Compliance Violations?
Winning the battle only to lose the war is a familiar saying. In this case, the battle is business overhead expenses in form of wages and the war is keeping the business profitable. Some businesses intentionally misclassify workers as independent contractors to mitigate the expenses associated with hiring an employee. The determination between an independent contractor versus an employee is changing. Employers need to get it right or pay back wages, back taxes, penalties and expose themselves to the legal claims of workers injured on the job.
On March 11, 2024, the longstanding “economic reality” test will be reinstated by the Department of Labor under the Fair Labor Standards Act. In brief, here is some background and what business owners need to know.
Independent Contractor Vs. Employees
Whenever a business owner speaks the words, “My employees are independent contractors,” it’s as if fingernails are digging into the chalkboard. This is a prime example of an oxymoron. An independent contractor works for themselves. They don’t “belong” to an employer.
Don’t look away, this is not new. While high-profile court cases featuring Uber and other offenders make the news, they do not represent the challenges on the same scale of the small employer. Business owners are pursued for back wages, taxes and penalties everyday in every large city in every state. They just don’t make the news. Making the wrong decision when it comes to classifying workers to win the battle of expenses short term can ultimately end in losing the war of profitability resulting in a business failure.
The “economic reality test” about to be reinstated is about the relationship.
There are several factors used:
- Does the worker have an opportunity for profit or loss?
- Does the worker have investment in the business service they are providing?
- What is the degree of permanence in the relationship?
- What is the degree and nature of control for performance of the work?
- Is the worker performing work that is integral to the nature of the business?
- Is the worker using unique skills?
- Does the worker benefit from showing initiative?
When it becomes apparent that the business will only thrive with reliable, trained, responsible workers using tools, methods and quality control imparted by the business owner, this is a job for an employee.
Need Help With Paying Employees?
Call Sam Bond Benefit Group To Streamline The Process.
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