Hiring independent contractors can be a great way to advance your business goals without hiring additional employees for the long term. Often, contractors are the best bet for accomplishing specific, creative tasks like rebuilding a website. However, if you engage independent contractors in any of the high-risk states, it’s important to take extra care to protect your business from the associated liability.
Which States Are Considered High Risk And Why?
Laws around documentation and classification are complicated and in certain states, it’s even more so. There are federal rules around engaging independent contractors and each state has its own regulations as well. What’s more, the rules change often and, in some cases, they even contradict each other. Even so, it’s still possible to guard against the major concerns that accompany engaging workers in these states.
Some companies dedicate entire departments to the task, but those without an internal team/human resources department that is equipped to address those needs should partner with a company that specializes in handling them. The best partners will be aware of these risks and on top of the changes as they happen.
The following states are considered high-risk for engaging independent contractors:
- California
- Washington
- Oregon
- Indiana
- Illinois
- Wisconsin
- Maryland
- Pennsylvania
- New York
- New Jersey
- Massachusetts
- Connecticut
What Risks Will Employers Encounter?
Misclassification
While we tend to hear only about the major lawsuits against the big players (like Instacart), many companies misclassify workers without even realizing it. Moreover, a standard, objective test to determine whether a worker should be classified as an independent contractor or an employee doesn’t exist. That’s in part because each state has the power to determine some of its own rules.
As we know, claiming ignorance is not an adequate defense strategy. Misclassifying workers can lead to fines, liability for unpaid wages and overtime, liquidated damages equal to the amount owed in unpaid wages, treble damages, attorney’s fees, tax and benefits liabilities, and more.
Audits
Even if you come out on the other side of an audit clean, it will be incredibly inconvenient and will divert resources and attention away from your business. Employers can quickly get themselves on the government’s radar by misclassifying workers. Having airtight processes–from the up-front paperwork all the way through payroll–is a good way to ensure workers are correctly classified and that they receive the corresponding benefits and accurate pay.
Additional Training Requirements
In some states, workers are required to have additional training, which can be part of what contributes to their status as high-risk states. For example, California, Connecticut, Delaware, Illinois, and Maine all require Sexual Harassment Training at various intervals and job levels. While these are among the states that require such training, other federal regulations and court decisions make it clear that best practice is for all employers to provide anti-harassment training. Legal decisions at the federal level have demonstrated that failing to provide harassment prevention training makes companies extra vulnerable when issues come up. Precedent shows that employers without training may lose their ability to raise an affirmative defense in a harassment lawsuit.
Would Engaging a Partner Benefit Your Business?
Engaging a partner whose core business addresses compliance concerns related to engaging workers in high-risk states has many advantages. If you think your company would benefit from having access to workers who are outside of your nexus, eliminating headcount changes, and mitigating risks, it’s time to consider engaging a partner like PayReel. Our system has defined processes for worker classification, payroll, and more. The system takes into account federal, state, and agency rules and includes a checks and balances process to ensure a solid precedent. Bottom line: We take compliance seriously! Contact us to talk about how this might benefit your business.
