Employee misclassification (noun):
- The kiss of death for companies.
See also: Number one on the IRS’s list of least favorite things.
The National Conference of State Legislatures provides an alternative description here: “Employee misclassification is the practice of labeling workers as independent contractors, rather than employees.”
As the shared economy blossoms and remote work becomes the new normal, independent contractors are on the rise. This is great for businesses and certainly for workers, too.
Businesses like using independent contractors because they’re affordable (no need to pay for health insurance, 401Ks, and other benefits) and they can hire à la carte for just the services they need, whenever they need them. Likewise, many workers prefer the autonomy of contracting, including flexibility in their schedules and the ability to work with a variety of companies on a variety of projects.
For the same reasons though, the IRS finds the rising trend troublesome. For employees, businesses are equipped to make sure they stay in line with labor laws, benefits, worker’s comp, unemployment insurance, and of course, tax withholding. Independent contractors, on the other hand, can operate in the wild, wild west of legal lands. They may or may not pay taxes properly, they may overstate their deductions, and they are just harder to keep tabs on (all of which are among the IRS’s least favorite things).
There are legitimate independent contractors and businesses who employ them properly, but misclassifying an employee as an independent contractor can be incredibly damaging, costly, and time-consuming. Just ask Uber and FedEx.
If you haven’t paid attention to it yet, it’s time.
Need more?
Worker Classification: What’s the Problem And Why Should You Care?
Worker Classification: Five Reasons Small Businesses Can’t Ignore Compliance Rules
Classifying Employees and Independent Contractors (A Cheat Sheet/Resource List)
About PayReel:
PayReel’s clients, who are some of the biggest companies in the world, are constantly immersed in the chaos of producing multimedia content or executing live events. PayReel makes sure they have the right contractors at the right time in the right place, and that everyone gets paid properly. And, most importantly, they handle every last detail perfectly while making sure their clients think nothing of it, so they can get back to doing what they do best.
