I am honored today to offer a the following guest blog by top rated Raleigh NC Business Attorney Donna Ray Berkelhammer. Thank you Donna for bringing your perspective as a business lawyer to the issue of classifying workers.
Control Your Employment Risks: Properly Classify Your Workers
Business owners are often shocked to find out they cannot choose whether to classify someone who is engaged to work for them as either an employee or a contractor. There is an extensive body of law, both from tax cases and employment cases, that set forth the differences. If the owner misclassifies the workers as contractors instead of employees, there can be wage and hour penalties, tax penalties and the employer can be responsible for worker’s comp injuries without workers comp insurance coverage.
Independent contractors have to pay their own self-employment and social security taxes and expenses of working. They do not get minimum wage, overtime, vacation or sick days or leave for medical emergencies. They are not protected against discrimination.
The risks of misclassifying have never been greater. The Department of Labor and the IRS are cooperating to identify improperly classified workers, to make sure workers are getting all the employment rights they should. Penalties apply even if the misclassification was not intentional or fraudulent.
The standards for distinguishing between an employee and an independent contractor focus on how much control the company exercises over the worker. The more control, the more likely the worker is an employee and not a contractor. Some points to consider:
* Does the company hire someone to perform a specific task in a specific way at a specific time, or does the company give the worker a project and a due date?
* Who provides the uniform, tools, supplies, equipment, work space?
* Is the worker required to work specific hours?
* Must the worker be onsite at the company’s facility?
* Does the worker work for other companies?
* Does the worker have his or her own company, or his or her own employees or contractors?
* Does the worker submit invoices, or get paid on regular schedule for a constant amount?
* How much supervision is the worker given?
* Does the worker get reimbursed for expenses (travel, gas, meals, supplies)?
The analysis is not always easy or straightforward, but the penalties are significant. If you want to make sure your workers are properly classified and your business is not at risk of tax and employment penalties, contact a business attorney.
Donna Ray Berkelhammer is a growing business attorney with Sands Anderson PC in Raleigh. She works with business owners in transactions during the entire life of the company, including formation; growth; asset protection; sale, merger, or winding-up; and business succession planning. Donna enjoys working with entrepreneurs to bring a business concept to the marketplace, as well as guiding established companies through critical negotiations.