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Mislabeling employment status impacts employers and employees

On Behalf of | Jan 12, 2021 | Uncategorized |

There are certainly benefits of an “independent contractor” status for both employees and employers, such as flexibility and higher wages for employees. For both parties, contractor relationships provide both parties short-term relationships, where the employee gains a broad range of skills and the employer finishes projects during busy times. Problems often arise, however, when the “independent contractor” status is used for an employee who should actually receive full-time employment.

Factors determining status

Although no set definition or criteria exists to define an independent contractor, the Internal Revenue Status considers the following factors:

  • Behavioral (employer’s type and amount of control over employee’s work)
  • Financial (if employer provides equipment to employee/reimburses for expenses)
  • Relationship Type (whether there are written contracts, importance of work)

The more an employer controls over an employee, such as work hours, how work is performed, providing equipment, and supervising, the employee leans towards full-time status. Sometimes employers and employees believe that agreed upon temporary work relationships automatically presume an independent contractor status. However, the totality of the factors, not necessarily the length of relationship, are what count. Employers and employees may feel better understanding specific positions’ statuses with the assistance of highly skilled attorneys.

Penalties and remedies for mislabeling statuses

When employers should have included an employee as a full-time employee, the employer could pay back taxes, interest on wages, and fines. Penalties add up quickly when numerous employees have been mislabeled. Either the IRS or U.S. Department of Labor can enforce penalties against employers.

Employees who believe their statuses are mislabeled have remedies available to them. Employees can discuss the status with the company, as the label may be a mistake that requires investigation. If raising the concern creates strain or provides results employees believe are incorrect, employees can contact the IRS. The IRS can conduct its own investigation into the status and determine the outcome for the employer and employee.