Independent Contractor Compliance Blog

How to Deal With Employee Misclassifications

If you are reviewing a consultant’s file and suddenly realize that you have a misclassified independent contractor (IC), you must address the issue right away. If you’re thinking: “I will ignore it…it’ll go away when the project ends”, the consequences of your decision can cause trouble. The longer the misclassification goes uncorrected, the more likely a bigger problem will result – such as civil suits, labor law violations and problems with tax enforcement agencies.

Many times, one of these events will come back to haunt you. In addition, enforcement agencies often examine the status of all of your consultants once they look at one. It’s smart to deal with the misclassification before it grows into a bigger problem that could cost tens of thousands of dollars, consume time needed to run the business, and potentially damage your company’s reputation.

There are two valid approaches to correct the problem:

1. Convert the consultant to an employee, or
2. Restructure the job and the working relationship to qualify as an IC

When choosing either of these approaches in-house, you should objectively assess if you have the ability, knowledge and experience to do it right. Will you be subject to internal pressures because managers don’t want to give up control over the day-to-day working relationship? Or does it matter if they don’t control all the details of how the project gets done as long as they get the same end result?

Sometimes changing a few key factors in the working relationship will do the trick. However, it’s not always easy to know which factors are important and which don’t make a difference. There is no universal formula and the answer can change from profession-to-profession.

That’s why managing risk mitigation is something best left to the experts.  Spending a small amount now to engage a high-end contingent workforce management company may save many times that amount later.

A quality contingent workforce company like Collabrus will provide much more than risk management, such as:

1. Program Management Services — hiring and on-boarding administrative processes, contract management and monitoring, employee and IC contractor support, project oversight, and budget control.

2. Pay and Benefit Services — benefits programs for contingent employees and optional programs for ICs, consolidated online invoicing and billing system for time, deliverables, expenses and other payments, employee withholding and reporting, 401(k) and insurance benefits.

3. And, of course, IC validation (including oversight of other vendors and payroll services you may use), online contract tracking and reporting, documentation and end of engagement processing.

We can help you correct problems and assist in the change management so the transition goes smoothly. This allows your ICs and temporary employees to provide their services in the most beneficial and economical way and yet minimize your risk exposure to civil liabilities, tax liabilities, employee benefits disputes and labor law violations.

Disclaimer: Given the general nature and context of this article, the material presented should not be relied upon or construed as either tax or legal advice. For specific information on recent developments, the effects of particular factual situations or of a particular law in regards to your business, or before making decisions based upon this presentation, you should obtain the opinion of a qualified expert.

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