First, you could describe what a misclassified worker looks like by listing some red flags that shout “misclassified employee”:
1. The engagement goes on-and-on.
2. The worker attends employee staff meetings and social functions.
3. His or her business cards are provided by the client and under the client’s business name — not his or her own.
4. The IC was trained by the client company and is expected to do the work according to the training.
5. A manager has the authority to oversee his or her work and change duties.
6. The IC has no real risk of loss because there is no investment in equipment or other hard assets and he or she is paid for the actual hours worked.
7. The IC is doing the same type of work as the regular employees, possibly sitting in a work station next to them, using the client’s supplies and equipment.
8. The work being done is an integral part of what the business is about. Without that type of work being performed, the client’s business would not exist. On the other hand, without the client providing work, the IC would be out of a job because there are no other clients.
Another approach would be to describe the flip-side; what does an independent contractor look like?
1. An IC offers a specialized set of high level skills which no one in the client company has, and therefore the client is not able to supervise the details of his or her work.
2. Possibly has formed a corporation and has a business name that the IC markets to gain new clients.
3. An IC has other clients (maybe even competitors of his/her client).
4. He or she is paid a set fee for a finished job as agreed — not for time worked.
5. When the job is completed, the IC leaves to do a new job for another client.
6. The agreement is to complete a specific project or task. The day-to-day methods the IC employs are his or her concern — not the client’s.
7. If the IC doesn’t do the job efficiently, and the job takes too long to complete, he or she could experience a loss.
8. Maybe the IC has an investment in equipment or other assets.
9. An IC may have employees who work for him/her.
I was told the first day of training in my job as an auditor, “If it walks like a duck and quacks like a duck, it’s a duck.” My question to you is: Do your ICs look like employees?
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.