Misclassification: a costly error

| Dec 23, 2019 | Firm News |

Many businesses and industries in Ohio rely on contract labor to meet deadlines and control labor costs. However, relying on contract labor can lead to a relaxed line between full-time employees and contractors, which may lead to complicated employment law situations.

Contract labor has clear advantages over the traditional employment model. Contractors typically don’t need healthcare benefits, and the process of contract employment allows a company to fill a short-term labor need with a talented individual and evaluate candidates for full-time work while gaining value from them. However, if a contractor is treated as an employee in every way but compensation, then the law might have something to say about that.

Unintentional misclassification

There are many instances of intentional misclassification. This happens when an employer or company maintains that they use contractors only, despite treating their contractors for all intents and purposes as employees, to avoid tax implications. The IRS provides clear rules distinguishing a freelance contractor from a full-time employee, including:

  • Integration with employees
  • The ongoing relationship with the employer
  • Compensation

As well as many other factors. The list compiled by Findlaw.com is 20 items long.

Misclassification can happen accidentally. If a contractor works closely on a team with full-time employees, is treated as an employee in all other respects, expects to continue work and is paid similarly to a full-time employee, then the individual may technically be a full-time employee.

Clarity and intention

One practical way to keep from any unintended drawbacks of using a mix of contract and full-time labor is clarity with all parties. Contractors exist under one set of rules, full-time employees under another. The more everyone knows and understands about their place in the corporate structure, and the more they adhere to it, the better off all parties will be. As always, to get clear guidance on any employment law issue, contact a skilled employment law attorney.

 

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