9 Signs of Increased Employee Misclassification Risk

By MBO Partners | May 13, 2021

Share
9 Signs of Increased Employee Misclassification Risk

Worker Misclassification Risk is Increasing

Worker misclassification and independent contractor compliance have long been high stakes issues for businesses, but legislation, high-profile cases, pressure from organized labor, and heightened scrutiny from government agencies have increased the risks of misclassifying workers as independent contractors.

Misclassification—whether intentional or unintentional—can lead to fines and penalties, litigation expenses, and worker settlements. Other costs, such as increased insurance premiums and reputation also hang in the balance.

Further complicating the issue is that there is no single national definition of “independent contractor.”  Workers are often simultaneously considered to be employees for the purposes of one law, and independent contractors or 1099s for other purposes. A categorization technique may be appropriate in one context, but inappropriate in a different jurisdiction or under a different legal provision.

Independent contractor status can be beneficial for both workers and employers, but these arrangements present complex compliance questions and often difficult choices. Employers can reduce the risk of misclassification through careful staffing methods, and early recognition of potential problems remains a key best practice.

Nine Signs of Increased Misclassification Risk

Businesses that engage independent contractors must assess classification status, evaluate liability insurance and indemnification issues, consider immigration control, work through benefit issues, and account for government contracting and subcontracting nuances. Constantly evaluating your risk profile will help reduce your risk.

Here are nine signs that your risk may be increasing.

1. Ineffective policies

2. Dissatisfied workers

3. Unemployment applications

4. Tax audits

5. Too much control

6. Unions

7. Employee-type benefits

8. Insufficient hiring policies

9. Insurance carrier audit

One of the best ways to guard against independent contractor misclassification and compliance risk is to have a systematic process for vetting and engagement. Develop a program that guarantees policies and practices are consistently followed and upheld. A centralized program should include a process to determine whether or not independent contractors are truly self-employed. Create a questionnaire or checklist to vet contractors and request
documents that validate self-employment.

Download our guide to learn more about these signs of risk and how to resolve them. You’ll also learn ways to avoid and reduce risk in the future.

Related Posts

misclassification and compliance news

Top Independent Contractor Compliance Stories from 2021

December 22, 2021

As the independent workforce continues to grow, so do the issues of worker compliance and misclassification. It is important for enterprises to remain informed about the latest laws, regulations, and developments surrounding these topics. 2021 was a fascinating year for independent contractor compliance. Here’s a look at some top stories. 1. Trump DOL announced new…

What is Worker Misclassification?

December 15, 2021

As more companies incorporate independent professional talent into their workforces, the issue of worker misclassification has also been thrown into the spotlight. But what is worker misclassification exactly? First, it’s important to understand that independent contractors—freelancers, consultants, self-employed professionals, side-giggers, etc.—represent a fundamentally different type of worker than your typical W-2 employee. ‘Independent contractor’ is…

4 Strategies to Reduce Misclassification Risk

December 8, 2021

Today, independent work is part of the normal career portfolio and organizations are increasingly looking for ways to incorporate independent professional talent into their overall workforce strategy. Independents have a lot to offer, and with the right engagement program, they can help an organization thrive. Here are four important strategies to keep in mind if…

Learn more about the MBO Platform

For Independent Professionals

Start, run, and grow your independent business with MBO

For Enterprises

Find, manage and retain top-tier independent talent