Overview: Having independent contractors offer benefits and risks. The benefits include avoiding certain taxes, legal liabilities and administrative challenges.
However, the risks can be great. Before filling a position with an independent contractor, it is essential to carefully consider the myriad factors that go into proper employee classification a worker as an independent contractor. An independent contractor should qualify not only under the tax code, but also several other state and federal employment laws that may come into play. Inaccurately classifying someone as an independent contractor can set an employer up for costly enforcement actions.
Trends: Government enforcement of independent contractor misclassification is stricter than ever, as the Internal Revenue Service, the U.S. Department of Labor and state agencies cooperate to enforce the laws.
Author: Michael Cardman, Legal Editor
The New Hampshire Department of Labor and the US Department of Labor have agreed to conduct joint investigations, coordinate enforcement activities, and make referrals of potential violations.
Alabama is the 16th state to join the US Department of Labor's Misclassification Initiative, following California, Colorado, Connecticut, Hawaii, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah and Washington.
Newly revised IRS procedures allow independent contractors to stop or prevent backup withholding on reportable employer payments by validating and presenting a Social Security card to an employer.
In-depth review of the spectrum of Maine employment law requirements HR must follow with respect to recruiting.
Use this workflow to determine if an employee is exempt or nonexempt from the minimum wage or overtime requirements of the Fair Labor Standards Act (FLSA).
In-depth review of the spectrum of Virginia employment law requirements HR must follow with respect to recruiting.
XpertHR is pleased to announce the addition of three new How To's, a sample independent contractor agreement, a documentation checklist and an internal independent contractor policy to help employers hire and manage independent contractors.
David Weil is expected to continue the Wage and Hour Division's policy of targeting enforcement efforts at what he calls "fissured industries," in which the use of franchising, independent contractors, subcontracting and third-party intermediaries such as temporary employment agencies or labor brokers has distanced employers from their workers.
Legal actions may result in an order or settlement requiring an employer to reclassify certain workers as employees. An employer also may voluntarily decide to reclassify certain workers for other business reasons. An employer should follow the steps in this How To to reclassify an independent contractor or group of independent contractors as employees.
To manage independent contractors effectively, an employer should set clear expectations about the project's scope, budget and timeline; keep the lines of communication open; and pay independent contractors promptly so that they will want to do business again. An employer should avoid actions that could result in a reclassification of the parties' relationship. After hiring an independent contractor, an employer should consider following the steps set forth in this How To.
HR guidance on legally classifying and managing independent contractors under federal tax and employment laws.