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Tampa Estate Planning Attorney > Blog > Business Transactions > Do You Know How to Correctly Classify Your Workers?

Do You Know How to Correctly Classify Your Workers?


If you own your own business and have employees, it is important to understand how to classify your workers. Are they employees or independent contractors? There is a difference and you need to know not only how to classify them, but the importance of classifying your workers correctly.

Difference Between an Independent Contractor and an Employee 

In most situations, a worker will be classified as an employee if you have the right to supervise the job they are doing, how the job will be done, and the method the worker will use to get the job done. However, an independent contractor has control over the means and manner in which a job will be done.

When classifying a worker, the Internal Revenue Service (IRS) looks at three things to distinguish between the two:

  • Behavioral control: Does the employer have control or direct all aspects of the job including when, how, and where it is done?
  • Financial control: Does the employer have control over whether the worker gets reimbursed for expenses, when and how the worker is compensated, as well as their benefits and other financial matters?
  • Type of relationship: Are there written contracts detailing if the worker is eligible for benefits, pension plans, sick and vacation pay? Does the relationship for these things extend beyond the duration of the job?

Some employers will misclassify an employee as an independent contractor to try to avoid the expenses of having an employee, such as payroll taxes, overtime requirements, minimum wage requirements, and more.

The Cost of Misclassification 

While having an employee can come at a high cost, misclassifying an employee can cost even more. Worker misclassification is constantly being monitored by government agencies including the IRS, Unemployment Agency, and Department of Labor.

If one of these agencies finds out that you have misclassified your worker, either unintentionally or intentionally, you may be facing serious financial and legal consequences. You may be required to reimburse your employee for things such as overtime and unpaid wages, workers’ compensation benefits, employee benefits, retirement contributions, unemployment insurance, Social Security and Medicare contributions, and back taxes. In addition, you could be required to pay penalties and interest that may be imposed by state and federal agencies for violating laws including the Fair Labor Standards Act and others. A single violation in some instances can result in a fine up to $25,000; a hefty price to pay for classifying a worker incorrectly.

Contact an Experienced Business Planning Attorney Today 

Attorney David Toback has been helping businesses and employers understand their responsibilities and laws surrounding operating a business for decades and he can help you too. It is important that you protect you and your business by thoroughly taking the time to analyze the working relationship you have with each of your workers an ensuring that each one is classified correctly.

Although classifying your workers as independent contractors may save you money up front, failing to classify them correctly could result in stiff penalties. Contact David Toback in Tampa today to schedule a consultation and let him help you ensure that you are classifying your workers correctly and answer other business planning questions that you may have.




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