Avoid Worker Misclassification Issues

Avoid Worker Misclassification Issues

Employee vs. Independent Contractor:

• Employee: Business controls what and how tasks are done.

• Independent Contractor: Offers services independently, with their own trade, business, or profession.

Key Differences:

1. Behavioral Control: Does the business control how and what the worker does?

2. Financial Control: Does the business manage the financial aspects of the worker's job (e.g., payment, expenses, tools)?

3. Relationship: Are there contracts or benefits like insurance, pension plans, or vacation pay? Is the work ongoing and essential to the business?

Consequences of Misclassification:

• Misclassified employees miss out on tax withholdings and employer-paid taxes.

• Businesses can be liable for back taxes if workers are misclassified.

• To correct misclassification, workers can get an IRS determination and use Form 8919 to report unpaid Social Security and Medicare taxes.

The image below is from DOL.gov

https://docs.google.com/document/d/1Ir0QP6ZvPA-YvQUgcjiksXr52E6fC10toV5Lfzj3M3c/edit?usp=sharing