Independent Contractor Compliance Blog - by Collabrus™

Do you have two minutes? Take this short test to see if you are misclassifying your consultants.

Clients often ask us for the magic pill, the quick and simple way to know if a consultant is properly classified as an Independent Contractor (IC) or not. The truth is there is no simple test. Common law is a complex area and it takes an expert to make the right decision, or to help you set up an IC relationship properly so that down the road some government auditor, or court, won’t reverse your decision and make you pay significant penalties and fines.

There are, however, some universal Red Flags that shout out “Employee Misclassification.” The questions below will give you some insight about these Red Flags and if your company is at risk or not. Be brutally honest in answering the questions, because an objective third party will. Answer the questions for any consultant you have classified as an IC. Print out this list, take a pen/pencil, and jot down your answers.

Answer ‘Yes’ or ‘No’ to the following:

1. Have you renewed the consultant’s contract several times, with minor changes in the deliverables, which has had the practical effect of extending the initial engagement for an indefinite time period?
2. Do you provide the consultant with a work station at your facility?
3. Do you provide the equipment needed to do the job (a computer, software, office supplies, or other tools)?
4. Do you pay the consultant’s work expenses?
5. Do you pay the consultant by the hour?
6. Do you pay the consultant even if a job needs reworking?
7. Do the day-to-day duties vary for the consultant depending on the needs of the company?
8. Does a manager in your company oversee the consultant’s work and have the ability to insist on reworking or changing the method of doing the job?
9. Has the consultant become exclusively dependent on the work you provide for his/her livelihood because he has either dropped his other clients, or never had other clients?
10. Is the consultant expected to attend regular meetings with your employees?
11. Was the consultant once your employee and now does substantially the same job, under similar working conditions, as an IC?
12. Can you decide what hours the consultant will work?

Scoring

If you answered ‘Yes’ to four or more of these questions for a consultant you classify as an IC, there is a possibility the consultant is misclassified. 

If you answered ‘Yes’ to six or more questions the consultant is almost certainly misclassified.

However, to be completely sure you need to do a more thorough evaluation, because this list is by no means complete and the weighting of each factor will vary depending on a number other circumstances.

One last thought

If you do not know the answers to these questions then your company is at risk. You need to gain control now before it is too late. It’s one of the services Collabrus provides.