Misclassification | INS Global

Employee Misclassification Risk
Calculator and Prevention Tips

Employee misclassification is a serious problem with the potential to delay or derail expansion plans for companies everywhere. It’s a danger made worse by the variation in the ways that workers are classified differently depending on where they are based.

what

What is employee misclassification?

Employee misclassification refers to the practice of labeling workers who should be employees as independent contractors.

This misclassification may be due to unconscious errors made during the contract formation stage or may be based on a desire to avoid benefits and protections typically afforded to the worker as an employee and to reduce the tax burden on the employer.

Answer the questions to discover your employee misclassification risk level

Score

What are the risks of employee misclassification?

risk

The risks of employee misclassification are substantial and include:

difference

What's the Difference Between an Independent Contractor and an Employee?

The exact way that employees and independent contractors are differentiated will depend on the labor law system under which a contract is formed. However, general factors relating to these classifications typically relate to:

Control and Independence

Employees typically work under the employer’s control, adhering to set hours, a defined management structure, and company policies, while independent contractors have final control over how and when they work.

Financial Arrangements

Employees receive regular wages and may receive benefits like health insurance, while independent contractors may be paid per project or hourly and, most importantly, without benefits.

Tax Treatment

Employers manage and withhold income taxes and Social Security contributions from employees’ paychecks. Independent contractors handle their own tax obligations and receive gross pay without withholdings.

advice

Expert Advice

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faqs

Other FAQs

How do I avoid employee misclassification as an employer?

In order to remain compliant and avoid risks associated with misclassification, it’s best to follow these tips:

Understand the Law – Familiarize yourself with all relevant federal, state, and local labor laws regarding the classification of different worker types.
Use Proper Contracts – Clearly outline the nature of the working relationship in contracts or contractor work agreements.
Seek Legal Advice – Consult with a local legal expert to ensure that all contracts are properly classified.
Review Job Duties – Regularly review job roles and duties to ensure they remain aligned with the right classification if they are changing.

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