Small businesses have learned to survive in today’s challenging world by hiring freelance or independent contractors to do specific jobs that the business can’t do. Instead of hiring a full time employee, they just outsource the job to help them save more. There are now a lot of workers who are considered to be independent contractors and sometimes they are misclassified. This misclassification can lead to unwanted consequences for your business so you should know how to classify them properly.
What Is An Employee
The government says that an employee is someone that the business or company can have control over his or her behavior at work. The company will determine how he should perform the task assigned as well as the place and time of work is. The business or company is also able to control how the employee gets paid or if any expense he makes gets reimbursed or not. Lastly the employer is also able to have a working relationship with the employee even after a particular job is done. Sometimes, employers get confused because the contractor fits the guidelines and the contractor can even work for 40 hours in a week for that company even if they are just an independent contractor.
Independent Contractors VS Employees
Independent contractors are the ones who make use of their own tools or materials to do the work. They only have a temporary work and are paid with a flat fee. They are also not eligible for unemployment benefits or other worker’s compensation. On the other hand employees are the ones that are paid regularly for guaranteed work and they receive benefits from their employers such as vacation pay, insurance plans, and many others. They can also be provided with training and they work in a defined workplace.
The government thinks that there are many misclassified as a independent contractor rather than an employee because of the taxes and benefits. There are also others who don’t misclassify their employees intentionally but the financial and legal consequences are still the same. Even if you opt for a payroll service solution to help you out with the computations for the tax, benefits, and other things that affects their paycheck, you as the business owner still have the responsibility of classifying your employees so that they get the right paycheck at the end of the month. Your business could be charged for reimbursement of unpaid wages, employee benefits or insurance, back taxes, income taxes and many others. In addition to this, you can also be penalised too.
For those who still can’t determine if they have a contractor or an employee, you should ask for help. The agency in charge of the taxes can help you classify your employees so that you can prevent future expenses or penalties from going your way. It is not enough for you to assume the classification of a certain worker because a wrong one would lead you into consequences that can affect your business. There is also no excuse for the misclassifications because they will still give you penalties and fines even if you didn’t misclassify your workers intentionally.