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Is that individual an employee or an independent contractor?

On Behalf of | Feb 14, 2019 | Business Formation & Planning |

We noted in our immediately preceding blog post that employee-linked challenges are an apex concern for most employers in Connecticut and nationally.

That is understandable, of course. Human relations are at the core of worker-manager interactions, and the workplace is an inherently complex venue. Lots of things go right, to be sure, but downsides are also an on-the-job reality.

We stressed in our Berdon, Young & Margolis February 11 blog post that an especially key concern in the labor law realm for many employers these days is the employee-versus-independent contractor distinction. Business owners and managers need to be on top of that, noting why it is important and understanding why making classification mistakes can lead to dire results.

One fundamental reason why state and federal regulators (principally the IRS, but many other entities as well) so closely target the classification realm is their stated concern that employer wrongdoing (or sometimes innocent error) materially shorts workers on benefits.

To wit: A company that classifies a worker as a contractor can forgo financial outlays on Social Security, workers’ compensation and disability insurance, Medicare and other payments that are customarily made on behalf of employees. Contractors bear sole responsibility for those payments.

That is lawful when classification is correct. When it is not, though, regulators see employers as wrongly securing benefits, harming their workers and committing fraud. The penalties for that can be flatly severe, including stiff fines and heightened regulatory oversight in the future.

For many employers, that begs this question: How can I be sure that my company’s worker classification determination is correct? Legions of good-faith business owners obviously try to do what is right by their employees and fully comply with relevant laws. They simply want to avoid error.

Regulators employ what is essentially a “totality of the circumstances” test for determining a worker’s proper classification. A recent Claims Journal article on the subject stresses that, “Much of the criteria has to do with control over the employee.” The IRS actually has a lengthy list of factors that help regulators reach conclusions following their collective evaluation.

Employers grappling with employee-versus-contractor issues might reasonably want to consult with experienced business law attorneys before making a classification decision.