|Aug 20 2015||
Update on Independent Contractors
By: John Morlock
In July 2015, the United States Department of Labor issued Administrative Interpretation 2015-1 to clarify the test for determining whether a worker is an employee or independent contractor. The Administrative Interpretation states that under the Fair Labor Standards Act most workers are employees and requires the “economic realities” test that is commonly used by the courts. This economic realities test holds that a worker is deemed to be an employee if the individual is dependent on the company. Many factors are considered when making the determination, including:
Classifying workers can have a material impact on employers as employees are subject to payroll taxes and workers compensation insurance. As a result, businesses will try to avoid these expenses by classifying workers as independent contractors. While this may work in the short term, these employers get caught when they terminate a contractor and the worker files to collect unemployment benefits. Independent contractors are not entitles to collect unemployment benefits, which then often prompts the workers to file a claim that they were in fact employees and requests the state department of labor to launch an investigation. If caught incorrectly classifying workers as independent contractors the company can be subject to hefty penalties in addition to back taxes on the affected workers.
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