{ } { }

Employee or Independent Contractor? Answering this question wrong could be costly!

Employee or Independent Contractor? Answering this question wrong could be costly! - Michigan Human Resources Blog - Sage Solutions Group - shutterstock_328207025_(1)

This is an important question that many employers need to ask themselves. Often, employers take the path of least resistance and deem an employee an independent contractor but this assumption could bring on some legal trouble. There are many tests that can be found online that help determine if a person's working arrangement tips the scale from independent contractor to employee. This classification error can lead to significant tax (income, Social Security and Medicare) withholding errors as employers typically do not withhold taxes on independent contractors. The State of Michigan published a 20-point fact sheet recently to help employers determine how to classify a worker appropriately. In general, there are three broad factors that describe a person’s scope of work and depending on the person’s working relationship with the company, the worker should be deemed either an employee or an independent contractor. The general factors to consider are whether or not the company has (1) behavioral or (2) financial control over the worker and what the working (3) relationship entails.

For example, consider the following:

  1. The worker is required to follow the rules of the company regarding the work performed
  2. The worker is provided training by the company
  3. The work is performed on a frequent basis
  4. The worker needs to be on premises at the company to complete the tasks
  5. The worker is paid for time worked (hourly or salary) rather than project based
  6. The company provides the tools to complete the job such as cell phones and computers, etc.
  7. The company directly reimburses the worker for expenses incurred completing the work such as mileage
  8. The work performed is vital to the company and not just an ancillary service

All of these statements are examples of when the scope of work tips the scales from independent contractor to employee. 

Still not sure?

The IRS form SS-8 can be filled out by the worker or the company to determine whether or not the scope of work classifies the person as an employee or an independent contractor. This is a very detailed form that explores all three of the factors described above. 

The fines for misclassifying employees can be in the millions. According to the Department of Labor, these errors cost everyone, in fact, misclassifications could double the Social Security Tax owed by the worker and the company could not only face fines but they are held legally liable as well. HR audits can be helpful in discovering these misclassifications and potentially correcting the errors before it becomes a costly mistake.   

https://www.michigan.gov/documents/uia/155_-_Independent_Contractor_20-Factor_IRS_Test_Revised_01-08-13_408013_7.pdf

https://www.irs.gov/pub/irs-pdf/fss8.pdf?_ga=2.16729200.770279023.1508430462-862237025.1508430462

https://www.dol.gov/featured/misclassification/index.htm

4 Ways Flexibility in the Workplace Really Works!

  With 2019 upon us, many businesses may be evaluating their business and human resource practices to prepare for what is to come in the year ahead.   As advancements in technology continue to give employees the opportunity to...

Cleaning Up Your Digital Footprint

What is a digital footprint, you ask?  It is the unique set of traceable digital activities, actions, contributions and communications that are manifested on the Internet or on digital devices. One aspect of your digital...

Employment News- Michigan Ballot 2018

Michigan businesses need to be aware that there are two initiatives being considered for the 2018 Michigan Ballot that could have significant implications for small businesses. The Michigan Paid Sick Leave Initiative (2018) and Michigan...

Recruiting in 2018

Finding the right talent and efficiently filling positions is harder today than ever before.  There are many factors that make this statement true. First, according to the New York Times, the unemployment rate in the US hit a new low...

Marijuana Use in the Workplace

There is no doubt that recreational use of marijuana is on the rise. For example, it’s not uncommon to stop at stoplight, only to be hit by the smell of marijuana wafting into your car. Or when was the last time you went out to enjoy a...
Page: 123 - All
734-238-3504