Best practices for avoiding worker misclassification

Up to 30 percent of employers misclassify their employees as independent contractors, according to national estimates. Misclassification occurs when an employer improperly classifies a worker as an independent contractor instead of an employee. Unfortunately, the consequences can be severe. Some businesses intentionally misclassify workers to try to save on taxes or avoid other costs associated with having employees, but the mistakes can be unintentional as well.

Key factor may be level of control

Distinguishing between an employee and an independent contractor, although complicated, is important, and there are multiple factors you should evaluate before classifying a worker. When determining a worker’s classification, keep the following IRS quote in mind:

There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors that are relevant in one situation may not be relevant in another.

The simplest standard may be evaluating the level of control you have over the worker. If you have the right to control the work (i.e., how, where, or when it’s completed) and provide the worker with tools and equipment to finish it, the individual should probably be classified as an employee, not an independent contractor.

On the other hand, if you determine the task to be performed but the worker controls when, where, or how, she may properly be classified as an independent contractor. Why? Because independent contractors are just that: independent.