For many employers, it's tempting to classify workers as independent contractors to avoid employment taxes, providing benefits or paying overtime.
However, according to an article published in the Claims Journal, the federal government has gotten wise to this practice. Government workers are on the lookout for business owners who are trying to thwart the system by classifying their employees as independent contractors.
The ramifications of misclassifying independent contractors
The federal government has recognized the fact that small business owners and large corporations alike are attempting to classify workers as independent contractors when in reality they are bound to the company on a full-time basis. Businesses that fail to properly classify their workers are going to be subject to fines from the IRS. Experts note that these fines are quite significant, and it would be a better financial decision to classify their workers properly rather than risk the consequences.
The criteria separating full-time employees vs. independent contractors
There are distinct differences between full-time employees and independent contractors.
A full-time employee is a worker who:
- Works at least 40 hours per week on location.
- Is supervised regularly by a manager or superior in the workplace.
- Is paid hourly or earns an annual salary.
- Receives additional benefits based on employment, such as health care coverage or retirement benefits.
- Is not able to work for other companies or organizations.
An independent contractor is a worker who:
- Can set their own schedule and work at their own pace.
- Does not receive direct supervision from the company that is paying them.
- Is paid a flat fee for the work performed.
- Does not receive additional employment benefits.
- Does not have to work exclusively for the organization that currently contracts with them.
If your organization hires both full-time employees and independent contractors, you will want to take a moment to look at the job responsibilities of the two types of workers. Full-time employees should have distinctly different responsibilities. Your independent contractors should not be completing the same tasks and projects as full-time employees.