It can be easy to misclassify a worker, especially when it comes to small businesses. There are a few different classifications that employees can fall under, such as employee or independent contractor, salaried or hourly and overtime exempt or non-exempt. Assigning the wrong status to a worker can bring costly consequences like liability for employment taxes, required payment of back wages, and other penalties. In order to avoid such trouble that will bring nothing but headaches, you should know exactly what constitutes certain designations and how to determine how you should classify a worker.
Independent Contractor vs. Employee
The first determination you should make is whether or not you technically have an independent contractor or an employee. The Internal Revenue Service (IRS) has developed a set of criteria to help employers make this designation. The IRS states that there are three areas where you should look to figure out if your worker is an employee or an independent contractor.
Typically, workers are considered to be employees if the employer has the right to control and direct the work performed by the worker. Your worker may be an employee if:
- You instruct the worker when and where to work or what supplies to use;
- You give very detailed instructions;
- You have an evaluation system to measure details of how work is completed; or
- You trained your worker on how to do the job.
Businesses usually have the ability to control the financial aspects of an employee’s job. Your worker may be an employee if:
- You have significantly invested in the equipment that the worker uses;
- You reimburse expenses for your worker;
- Your worker is not free to seek out other business opportunities; or
- You pay your worker a regular wage.
You also need to examine the relationship between you and your worker. Written contracts can help clarify the relationship that the two of you intend to create, but simply stating that a worker is an independent contractor or employee is not enough to prove the worker’s status. Your worker may be an employee if:
- You provide them with benefits such as insurance, pension plans, vacation pay or sick pay;
- There is an expectation that the relationship will continue indefinitely; and
- The services that the worker performs are key aspects to the regular operations of the company.
Still Unsure of How to Classify Your Worker? Contact an Illinois Employment Defense Attorney
Because you could face extensive consequences, you should contact a Schaumburg, IL employment defense lawyer if you are not completely certain of how to classify your workers. If you end up classifying your worker as an independent contractor, but they are deemed by the IRS to be an employee, you could be fined and responsible for paying employment taxes. The Miller Law Firm, P.C. can help you make the correct determination to help prevent any missteps on your part. Contact our office at 847-995-1205 to set up a consultation.