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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?

When laws around documentation and classification are more complicated, the risk for engaging contractors increases. The regulations change often and, in some cases, they even contradict each other. The good news is that it’s not impossible to guard against the major concerns that accompany engaging workers in these states.

Businesses 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, many companies misclassify workers without even realizing it. If there were a standard, objective test to determine whether a worker should be classified as an independent contractor or an employee, the matter would be simple. Of course, with each state having the power to determine its own rules, a standard test does not exist.

Still, the stakes for misclassification are quite high. Misclassifying carries risks such as 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, hefty fines and more.

PayReel’s system has a defined worker classification system 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.

Bottom line: We take compliance seriously!

Audits

Audits are incredibly inconvenient and being sloppy about classifying workers is one of the easiest ways to end up on the government’s radar. PayReel’s processes–from the up-front paperwork all the way through payroll–are designed to ensure workers are correctly classified and that they receive the corresponding benefits and accurate pay.

Take our 5-minute self-audit

Additional Training Requirements

In some states, workers are required to have additional training.

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 have specific statutes requiring such training, other federal regulations and court decisions make it clear that best practice is for all employers to provide anti-harassment training, regardless of the state(s) in which they operate.

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 the 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, contact us.

You don’t have to have someone on your own team who knows all the rules. Free up your own team to focus on the areas of business they are best at and let PayReel keep up with Department of Labor regulations.