With state governments increasingly passing laws to protect employee rights, companies that misclassify their employees are now at heightened risk of being held liable to workers’ compensation claims, tax penalties, and other lawsuits. Determining if a worker is a contractor or employee can be confusing - so how do you figure this out?
The IRS has outlined three criteria for businesses to consider holistically:
- Behaviorally, does your company control or have the right to control what your worker does and how they do it?
- Financially, do you control the business aspects of your worker’s job? This includes how the worker is paid, whether expenses are reimbursed and who provides supplies.
- In terms of the type of relationship– are there written contracts or employee-type benefits such as pension plans, insurance, and vacation pay? Will the relationship continue and is the work performed a key aspect of the business?
Furthermore, you can either talk to your broker and/or submit Form SS-8 for the IRS to officially determine the worker’s status.
With a proactive approach, you can ensure that your business and your workers are properly protected.