Employee or Independent Contractor? Why It Matters
Misclassifying employees as independent contractors can have a significant negative impact on your business. An employer who misclassifies a worker can face costly fines and penalties and may even be held liable for back taxes. Our Tampa construction attorneys at Cotney Attorneys & Consultants can assist your construction company with employee misclassification issues and help mitigate the consequences of employee misclassification.
In the eyes of the IRS, depending on the level of control an employer has over a worker, they can either be classified as an employee or an independent contractor. An employee is a worker who is paid through the company's payroll system, has taxes withheld from their pay, and is covered through workers' compensation insurance. An independent contractor is a worker who is not paid through the company's payroll system, does not have taxes withheld from their compensation, and is not covered through workers' compensation insurance.
Aside from Federal standards, many states, including the state of Florida, have their own standards to help determine the classification of a worker. As an employer in the state of Florida, it is important to be familiar with both federal and state standards, and to thoroughly understand when a worker should be classified as an employee or independent contractor. If you are dealing with the ramifications of misclassifying an employee, it is highly recommended that you seek the legal council of an experienced construction attorney in Tampa as soon as possible.
Florida's Workers' Compensation Act
According to Florida's Workers' Compensation Act, a worker is classified as an independent contractor if they meet at least four of the following criteria:
1. Worker maintains a separate business and supply their own facility, truck, equipment, materials, or similar accommodations,
2. The worker holds or has applied for a Federal employer identification number,
3. Compensation for services or work performed is paid to the business entity rather than the worker,
4. The individual holds one or more bank accounts in the name of the business entity, which is used for paying business expenses,
5. The individual performs work for customers in addition to the employer in question, and does not complete an employment application or process,
6. The individual is compensated for the work or services preformed on a competitive-bid basis, or by contractual agreement.
If 4 of the 6 criteria are not met, an individual may still be considered an independent contractor if one of the following conditions exist:
1. Individual performs or agrees to perform specific services for a specific amount of money, and has control over the means by which to perform said services,
2. The individual incurs the principle expenses related to the work performed or agreed to perform,
3. The individual is responsible for the satisfactory completion of the work they perform or have agreed to perform,
4. The individual receives compensation for work performed on a commission or a per-job basis only,
5. The individual may realize a profit or suffer losses in connection with their performance,
6. The individual has continuing or recurring business liabilities or obligations,
7. The success or failure of the business depends upon the ability to generate enough revenue to cover expenses.
Consequences of Misclassifying an Employee
Misclassifying employees is a costly mistake that many companies make, whether intentional or not. In the state of Florida, the intentional misclassification of an employee is considered a felony. Additionally, the misclassification of an employee can result in the imposition of stiff fines, hefty penalties, and back taxes against the employer.
The Department of Financial Services may assess a penalty equal to 1.5 times the amount the employer would have paid in workers' compensation premiums within the preceding three-year period or $1000, whichever is greater. Additionally, the department may also assess a penalty of $5,000 for each worker that the employer intentionally or unintentionally misrepresents to the department or insurance carrier as an independent contractor.
Our Tampa construction attorneys understand that this area of the law can be very complex, and we work hard to ensure that our clients fully understand their rights and obligations under the law.
To speak with one of our construction attorneys, please contact us today.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.