No matter where you are, engaging independent contractors comes with some risk to your business. You need to be ready to abide by a zillion (give or take) laws and regulations to make sure you stay compliant and in good standing with state and federal rules and regulations. In any of the high-risk states, it’s important to take extra care to protect your business from the associated liability.
Where is it Riskiest to Engage Independent Contractors?
California tops the list of risky states for engaging independent contractors. The laws there are never as simple as they seem at first blush, and the stakes for violations are high. California is considered a bit of a trendsetter in employment laws, so even if you don’t have workers there, the effects can reach your own states. In addition to the Golden State, Connecticut, Washington, Oregon, Indiana, Illinois, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Washington, and Wisconsin are all considered the riskiest places to engage independent contractors.
What Makes a State High Risk?
Laws around documentation and classification exist everywhere, but wherever they are more complicated, the risk of engaging contractors increases. On top of that, the regulations change often, and, in some cases, they even contradict each other. Yikes. This makes guarding against the major concerns (including audits, classification, and overall compliance) trickier. The good news is that it’s not impossible. Businesses without an internal team/human resources department that is equipped to address those unique needs should partner with a company that specializes in handling them and being proactive about changes as they happen.
Misclassification/Compliance Concerns
While it’s usually the major lawsuits against uber-sized businesses (like, ahem, Uber), many smaller companies misclassify workers without even realizing it. There is not a standard, universal, objective test to determine whether a worker should be classified as an independent contractor or an employee. In addition, each state has the power to determine some of its own rules. So not only is it complicated, but the stakes for misclassification are quite high. Violations can result in hefty fines, back taxes with interest, and lawsuits.
Audits
Audits don’t care if your mistake is intentional or innocent and they are incredibly inconvenient either way. Being sloppy about classifying workers or casual about documentation is one of the easiest ways to end up on the government’s radar. Businesses should have an airtight process–from the up-front paperwork all the way through payroll– designed to ensure workers are correctly classified and that they receive the corresponding benefits and accurate pay.
Now What?
For companies without an internal team equipped to handle the issues, engaging a partner that addresses the concerns related to engaging workers in high-risk states is a slam dunk.
Here at PayReel, classification and compliance matters are at the core of our business. As such, we’re continually improving our system with a defined classification process that takes into account federal, state, and agency rules and includes a checks and balances process to ensure that the chosen classification has a solid precedent. We take compliance seriously on your behalf! Contact us if you want to see if a partner could make your business better or your life easier.
