During a recent conversation with an employment commission staff person, I asked what was the most common mistake businesses make. Without much hesitation the staff person said it was designating individuals as independent contractors when they are really employees.
There are several consequences with treating individuals who are really employees as independent contractors. The first is if you get caught you’ll likely have to pay back federal and state taxes and penalties and you’ll have to pay the commission what its owed due to the mis-classification.
Mis-classifying individuals may also expose the company to significant liability if the mis-classified individual is injured and sues the company. A third consequence is that your employment tax may be increased to the maximum of over 6% of the first $8,000.00 in wages paid.
The Internal Revenue Service has published guidelines about how to determine if someone is an independent contractor or employee.
Another common mistake is the challenge of firing someone without relating the firing to the company’s policy manual. Correcting this requires having a policy manual and procedures that inform new hires about the manual, particularly the consequences of violating company polices and procedures.
At Torus Law we are passionate about helping our business clients dream, plan, build and succeed. If you have questions about how to classify staff or what should be in a policy manual contact me.
Torus Law, PLC