Part 1 of 3. Our 3-part series looks to explore the employment classification of today’s independent contractor and the trends influencing the increasing contingent workforce. These articles are published for information purposes only and do not constitute as legal or tax advice. For legal or tax assistance in employment classification, please consult with a legal or tax professional.
employment classifications: are you asking the right questions?
The extent of employment misclassification is complex and hard to accurately calculate — and the ramifications can be costly.
According to a recent fact sheet put out by the Department for Professional Employees, in 2011, the Department of Labor collected more than $5 million in back wages on behalf of about 7,800 misclassified employees — a 500% increase over the amount collected in 2008.
The DOL has also hired 300 additional investigators to probe complaints.
To evaluate employment engagements, the IRS examines three primary control factors to determine if an individual is truly an independent contractor or if he or she should be classified as an employee.
Under review are:
- Financial control — how is the worker paid? Are expenses reimbursed?
- Behavioral control to determine if the employer has the right to direct or control how the worker performs the task for which they are hired.
- The type of relationship between the employer and the worker — is there a contract in place? What is the permanency of the relationship?
To ensure you’re classified compliantly or, in the case of employers, that your workforce is properly classified, start by asking these financial, behavioral and relationship-based questions highlighted here.
For more information on employment classification, download our white paper: Identifying & Managing Independent Contractor (IC) Talent Compliantly.