Never base a worker classification decision on uncertainty, according to attorney Christine Walters.
Walters, a Maryland HR consultant presenting at the Society for Human Resource Management’s legislative conference in Washington, D.C., March 5, ticked off the many reasons employers might be inclined to classify a worker as an independent contractor. Among them: to avoid paying employment taxes and to ‘try out’ a worker before extending the legal protections that only cover employees.
These reasons, however, wont pass legal muster and making a bad call carries increasing legal risks, she said.
The Labor Department and the Internal Revenue Service have both stepped up their worker classification enforcement efforts and now are sharing information. As a result, an employer investigated by one agency for possible classification violations is more likely than ever to be investigated by the other.
These recent pacts have a threatening message, Walters said. The purpose is to “send a consistent message to employers about their duties to properly pay their employees and to pay employment taxes.”
Employers who make the wrong call may face heavy penalties and be ordered to pay employment taxes and overtime.
States are also clamping down on enforcement and DOL is sharing enforcement information with them as well, Walters said.
She urged employers to apply the IRS criteria for distinguishing employees from independent contractors, described in IRS Publication 1779.
Factors that often lead to a court or administrative ruling that a worker is entitled to employee status generally fall into three categories, she said. They are:
Behavioral control: If employer directs or controls how the worker does the work.
Financial control: If the employer directs or control the business part of the work, including reimbursing individuals for their expenses.
The parties’ relationship: How the employee and employer perceive their relationship. The relationship can be spelled out in a written contract or be based on whether an individual receives employee benefits.
Walters urged employers with questions to contact their state labor department with questions. Creating a relationship with local labor authorities may pay off later by creating a record demonstrating a good faith effort to be compliant.