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How to categorize independent contractors vs. employees

On Behalf of | Jun 10, 2020 | Employment law |

Contract work has grown more prevalent in Ohio and elsewhere in the United States. Contracting offers workers flexibility and allows employers to avoid providing certain benefits such as health care. But with contract work increasing, workers and employers alike may face issues regarding how to classify independent contractors versus employees. Determining the correct category for a worker is complex, but crucial.

Independent contractors, or employees?

The difference between employees and contractors is how much control an employer has over the work process. While employers get to control the manner in which employees complete their work, employers do not get to control how independent contractors complete their work.

To select the correct designation, there are three factors to consider:

  1. Financial control

How much control does the employer have over the financial aspects of the worker’s job? Employees, for example, have the right to reimbursed expenses and a regular wage for a period of work. Independent contractors do not.

  1. Behavioral control

Employers can control the methods by which employees work, including their instructions, training, and evaluation, but not independent contractors.

  1. Type of relationship

Finally, the relationship between employer and worker is critical for correct classification. An employment contract and the expectation of an ongoing relationship usually indicates an employee, not a contractor.

Despite these indicators, there are still shades of gray that can make it difficult to categorize workers. Employers and workers often work with an employment law attorney who can help them identify the correct employment status.

What happens when employers misclassify workers?

In some rare circumstances, employers deliberately misclassify employees as contractors to avoid paying them benefits. Often, though, the misclassification of a worker is simply a mistake. Still, the consequences of counting a contractor as an employee or vise verse can come with serious tax penalties for employers. Additionally, workers who believe that their employer mis-categorized as an independent contractor can also report their employer’s uncollected taxes.