Employers often unintentionally misclassify workers as independent contractors when they should really be employees. This common error can lead to serious consequences, including audits, lawsuits, and liability. Accordingly, all employers should conduct a careful review of their independent contractor relationships to determine if they are valid and proper.
The law further states that independent contractor status is evidenced if the worker: (1) has a substantial investment in the business other than personal services, (2) purports to be in business for himself or herself, (3) receives compensation by project rather than by time, (4) has control over the time and place the work is performed, (5) supplies the tools used in the work, (6) hires his or her own employees, (7) performs work that is not ordinarily in the course of the employer’s work, (8) performs work that requires a particular skill, (9) holds a business license, (10) intends to establish an independent contractor relationship, and (11) agrees that the relationship is not terminable at will.
The penalties for misclassifying an employee as an independent contractor can be quite severe. They may include an intrusive government audit, which frequently leads to the employer having to pay back taxes and fines to the government. Also, workers who were misclassified as independent contractors may bring civil lawsuits to recover lost wages and benefits from the employer, and may even recover their attorneys fees and costs of suit. Also, there has been a recent trend towards class action lawsuits against employers in this area, which can be quite expensive to defend.
Due to the legal complexities concerning the classification of workers as either independent contractors or employees, employers may want to have experienced counsel assist them in their review of this important issue.