5 Tips for Proper Classification

5 Tips for Proper Classification

Below are five tips to help you avoid misclassification:

1.  Know the Law.  As indicated above, there are federal and state guidelines with which all business owners should follow.  The guidelines will assist the business owner in adequately structuring its relationships and avoid liability for misclassifying them.

2.  Use the Right Agreement.  Consult with an attorney to make sure you have the right agreement in place.   A written agreement creates a presumption of an independent contractor relationship that writing alone will not prove a worker is an independent contractor.  You must always be able to satisfy the ultimate inquiry – freedom of the independent contractor from control.

3.  Use the right type of Independent contractors.  Workers who are performing services for multiple businesses that are the same or similar to yours are more likely to be considered independent contractors instead of employees.

4.  Do not use Independent Contractors to perform your core services.  Do not hire independent contractors to accomplish the same or similar functions as your regular employees.  Remember, if it looks like a duck, quacks like a duck, the IRS and state will likely view it as a duck.

5.  Do not treat a former employee as an independent contractor.  If an employee returns to work at your business and will be performing the same or similar tasks as he/she did previously, do not treat him/her as an independent contractor, for this will only increase the likelihood that misclassified the worker.

Failure to accurately classify workers can cost any business owner a significant amount of time and money.  Business owners should always consult with an attorney if there is ever a question about whether a worker is classified correctly.

Colorado Employment Law 8-40-202

Business Owners Beware

IRS 3-Part Test