Worker misclassification has long been a high stakes issue, but new legislation, recent high-profie cases, pressure from organized labor, and heightened scrutiny from government agencies have increased the risks of misclassifying workers as independent contractors (ICs). State and federal government budget crises have driven scrutiny on independent contractor classification - which was already high - to a new and even higher level.
Misclassification, intentional or unintentional, can lead to fines and penalties, litigation expenses, and worker settlements, while other costs, such as increased insurance premiums, also hang in the balance. On state and federal levels, the enforcement trend is toward moving workers from independent contractor and/or 1099 status into employee status. Simultaneously, more and more workers and businesses are moving toward a more flexible, contingent model including independent consultants, freelancers and 1099s. This has created a perfect storm of government compliance efforts moving directly against a strong societal trend - with businesses caught in the middle.
A serious complicating factor for business is that there is no single national definition of "independent contractor (IC)." Workers are often simultaneously "employees" for the purposes of one law, and independent contractors 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 sometimes difficult choices. Employers can reduce the risk of misclassification through careful staffing methods, and early recognition of potential problems remains a key component of "best practice." Employers can be better prepared to recognize and address those problems if they watch for these ten signs of a possible storm on the horizon.
Need to know information for any individuals or companies hoping to engage independent professionals in the 21st Century.
MBO Partners developed a calculator that quantifies what we can: the IRS component of the risk. Our legal team scoured the IRS code and assembled the possible penalties into a single easy-to-use calculator.