The Difference Between Employees and Independent Contractors
With wage and hour claims on the rise, employers should be diligent about taking preventive measures. One action that can be taken is making sure workers are classified correctly. This is important since worker classification affects hours, benefits, and taxes. Typically, workers fall under two categories: employees and independent contractors. Misclassifying employees can cause trouble for both employers and employees, so it’s important to understand the difference.
Employee vs. Independent Contractor
Worker misclassification happens when an employer treats an employee like an independent contractor. Employees work for someone else, using their materials and resources, and being assigned hours and tasks. Employees are often prohibited from working for other people when in an employer/employee relationship. Independent contractors work for themselves, choose their own hours and projects, and typically work with many clients. An easy way to tell how an individual is classified is the tax form used to report income. Employees use a W-2 and contractors use a 1099. Why does this matter? Worker classification changes an employer’s obligations for wage, hours, protections, and more. Employees are protected under the Fair Labor Standards Act (FLSA) and the Family and Medical Leave Act (FMLA), whereas contractors are not.
Consequences for Misclassifying Workers
Employers sometimes purposely misclassify workers to avoid providing unemployment tax, worker’s compensation, and other associated expenditures. This is illegal and can get the employer in a lot of trouble. Employers caught misclassifying workers can face possible criminal prosecution, taxes, charges, and civil penalties. Even if misclassification happens unknowingly, only an attorney can mitigate the effect.
How to Avoid Misclassifying Workers
Even though it’s common for misclassifications to happen unknowingly, employers should try to be proactive about preventing them. The Department of Workforce Development and the U.S. Department of Labor have free resources you can use to help learn the difference and understand how to correctly classify workers. The safest way to ensure you’re in compliance with state and federal law is to have an attorney review your policies and practices. Working with a wage and hour expert will protect you now and down the road.
The attorneys at Walcheske & Luzi have extensive experience regarding all things employment, especially wage and hour law. If you need a review of your policies and practices, Walcheske & Luzi offers auditing, representation in government audits, and can assist with updating policies.