Businesses nationwide continue to face scrutiny for their classification of certain workers as independent contractors. For the past several years, federal and state government agencies have stepped up on-site audits of companies to determine whether workers are properly classified as independent contractors or employees. Read the article below drafted by Stacey DeKalb which appeared in The Chronicle, the newsletter of the St. Croix Economic Development Corporation.
The laws governing worker classification are complex and, at times, lead to confusion about how such workers should be classified. Different federal and state government agencies consider different factors in deciding the appropriate classification. Consequently, a worker can be deemed an independent contractor under one law and an employee under another. Businesses that utilize independent contractors are well advised to consult with legal counsel to make sure they are complying with federal and state law.
When state and federal agencies investigate worker classification, they look at the totality of the circumstances that exist between the business and the worker. The right of control the business has over the worker is commonly recognized as a key factor. If a worker has been misclassified as an independent contractor, the business can be liable to the IRS for delinquent employment taxes and penalties and, in addition, the business may face other liability in terms of minimum wage, overtime pay, benefits eligibility, workers’ compensation insurance, state unemployment insurance taxes, violation of state worker misclassification laws, and attorneys’ fees.
Given the ongoing scrutiny of such relationships, businesses are advised to consider the following suggestions concerning the classification of workers:
- Evaluate the classification status of workers carefully at the beginning of the work relationship. If the worker truly seems to fit the independent contractor status, make sure that you are complying with the relevant statutory factors. If the relationship changes over time, re-evaluate how you are classifying the worker.
- Become familiar with factors commonly used by the IRS, the DOL, and state enforcement agencies for determining independent contractor status.
- Keep informed of changes to the classification of workers in your particular industry.
- Have legal counsel assist you in conducting a self-audit of your independent contractors.
Both Wisconsin and Minnesota have enacted worker misclassification laws that impose severe penalties on employers that misclassify employees as independent contractors. To encourage worker classification compliance by businesses, the IRS has a voluntary compliance program that is available through June 30, 2013. While this temporary program may be a viable option for certain businesses that were previously ineligible because of the failure to file the required Forms 1099, the program is not without risks and legal counsel should be consulted before participating in the program.
For more information about the misclassification of workers or any other aspect of your company’s employment obligations, contact Stacey DeKalb, the author of this article. Stacey is admitted to practice in both Wisconsin and Minnesota and can help you with your employment-related issues in either state. Call Stacey or any of Lommen Abdo’s attorneys when you need an effective and efficient legal advocate.