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Independent Contractor Misclassification
- nettime solutions staff
Caught Between a Rock and a Hard Place
In the ensuing panic that resulted as the Great Recession took hold, some companies went belly up while others, both unscrupulous and not, chose to use questionable labor practices to help them survive and then dig out from underneath the rubble of the recessionary earthquake.
Hiring independent contractors instead of employees was one such practice that came under the close scrutiny of government regulatory agencies.
Defined as misclassification, hiring independent contractors helped companies sidestep certain requirements of the Fair Labor Standards Act (FLSA) and other labor laws.
Businesses that inappropriately engaged independent contractors incurred significant financial costs in the form of back wages, taxes, various worker protections premiums, damages and fees.
While the skeptics and conspiracy theorists question the altruistic intent of the US Department of Labor and the Internal Revenue Service (IRS) in investigating employers to protect employees, the fact remains that certain hiring practices have stringent guidelines.
Hiring independent contractors is a legitimate labor practice in American commerce, but it comes with specific criteria that define the independent contractor role.
The IRS uses three characteristics: behavioral control, financial control and type of relationship, along with a twenty-factor test, to determine if a worker is an employee or an independent contractor.
The IRS provides these criteria as well as useful tools on their web site, including a Determination of Worker Status form, to help companies and workers evaluate their independent contractor relationships.