What Employers Need to Know About Worker Misclassification

 Posted on August 08, 2022 in Employee Misclassification

Business owners use a number of different strategies to ensure that their companies can continue to be successful. These strategies include determining the best ways to handle different types of workers. Many full-time and part-time workers will be considered employees, and minimum wage and overtime laws will apply to them. Employees will also be eligible for certain benefits, including workers’ compensation and unemployment. A business owner may also hire freelancers to perform certain types of work, or they may hire contract workers on a temporary or long-term basis. 

Since different rules apply to employees and independent contractors, it is important to understand how to properly classify workers. Misclassification of workers may result in penalties, so even if it may seem financially advantageous to treat workers as independent contractors, employers should be sure they are following correct practices when hiring workers as employees.

Determining How a Worker Should be Classified

Since every business is unique, multiple factors play a role in determining whether workers should be considered employees or independent contractors. An employer will need to look at the nature of their business, the types of work being performed, and the ongoing relationships with their workers. Generally, the determination of a worker’s classification will be based on what is known as the “ABC test.” This test looks at the following factors, and if they are all true, the person may be classified as an independent contractor:

1. Control over the work being performed - A person must be free from direct control by the employer. An independent contractor can determine when and how work will be performed. If an employer requires a person to perform work in a certain location, at specific times, and following specific procedures, the person may be considered an employee.

2. Work outside the employer’s usual course of business - An independent contractor will generally need to perform work that is not part of the employer’s usual business practices. If a person engages in work that is directly related to the business’s products or services, they may be considered an employee.

3. Independently established trade or profession - A person may be considered an independent contractor if they have established a business of their own that is separate from the business operated by the employer. A contractor may be self-employed and may perform services for multiple clients. If a person works solely for one employer and has not created an independent trade or business, they may be considered an employee.

Consequences of Worker Misclassification

While classifying workers as independent contractors may result in some immediate savings by eliminating the need to pay for workers’ compensation or unemployment insurance, incorrectly classifying workers could result in a variety of penalties. Employers may be required to pay delinquent insurance payments that should have applied to employees, as well as interest and penalties. An employer may also be liable for employment taxes that should have been withheld from the wages paid to misclassified workers.

Contact Our Schaumburg Worker Classification Attorney

If you are an employer who has questions about how to classify different workers, or if you are concerned that you may face penalties for misclassifying workers, the Miller Law Firm can provide you with legal guidance. We will identify any potential issues that could lead to penalties, and we will make sure you take the necessary steps to comply with all applicable employment laws. Contact our Illinois employment lawyer at 847-995-1205 to schedule a free consultation and get the legal help you need.

Sources:

https://www2.illinois.gov/idol/Employees/Pages/Employer-Misclassification-of-Workers.aspx 

https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee