Employers are obligated by state law to classify their employees properly and pay them accordingly. While employers can misclassify employees unintentionally, misclassification is illegal and can have stiff legal ramifications. It is important to understand that workers who are misclassified are deprived of essential mandated benefits such as workers compensation if injured on the job and/or unemployment benefits.
One of the most prevalent instances where misclassification occurs is when employers classify their employees as independent contractors to avoid paying state minimum wage, overtime rates and payroll taxes. Investigation under these circumstances has increased; therefore, it is best practice for employers to know the difference and maintain proper records to avoid misclassification.
Some criteria of an Independent Contractor:
- Run their own business
- Paid upon completion of project
- Provides own materials, tools and equipment
- Work with multiple clients
- Temporary relationship until project is completed
- Decides when and how they will perform the work
- Decides what work they will do
For More Guidance on how to determine who is an employee or independent contractor under the Fair Labor Standards Act (FLSA) click here