Misclassifying Independent Contractors
Independent contractors are vital to the construction industry. Unfortunately, millions of workers across the country are misclassified. Employers must classify workers properly to determine their tax and withholding responsibilities. Failure to comply is considered misclassification and can lead to severe penalties.
When it comes to federal law, construction professionals at every level need to understand what is required of them to maintain a successful business. This short article will serve as a refresher for employers and contractors. As always, consult a West Palm construction lawyer to gain a better understanding of your rights and obligations.
Florida Independent Contractor Determinations
According to IRS.gov, worker classification determines if an employer is responsible for withholding income tax and paying Social Security, Medicare taxes, and unemployment tax on wages they pay to employees. Employers do not have to withhold or pay any taxes on payments they make to independent contractors. Independent contractors are responsible for their own taxes. The degree of control an employer has over a worker determines their status as an employee or independent worker. Three categories are used to decide a worker’s classification: behavioral control, financial control, and relationship — all of which are explained in detail on the IRS website.
Questions Employers Should Ask
Employers are advised to review Florida’s right of control tests to make the proper independent worker determinations. Some of the questions workers should be able to answer include:
- Does the worker come and go as they please?
- Do they set their own hours/schedule?
- Does the worker own and use their own tools and supplies
- Does the worker complete work independently as they see fit without direction from the employer?
Steps to Take to Avoid Independent Contractor Misclassification
A greater awareness of worker rights and misclassification lawsuits require construction companies to take several steps proactively to minimize the risk of misclassification.
- Worker classification policy: Create guidelines for hiring and managing independent workers and ensure they are enforced.
- Classification workers properly: State and federal tests for determining classification differ. Use these tests as a guideline to determine if a worker is an employee or an independent contractor.
- Get guidance from the IRS: Use the IRS’ Form SS-8 to properly determine status.
- Conduct internal audits: Analyze your records of services and contracts to ensure that employees and independent contractors are classified properly and that contractors have a federal tax ID number.
- Put contracts in writing: Contracts help to clearly define your contractual relationships. In the event of an audit, you have proof that the independent contractors you work with are free from control and are licensed and insured.
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.