Given the costs of hiring full-time employees, more companies are turning to independent contractors to cover part of their staffing needs. But are they opening themselves up to legal danger?
They could be — if they aren’t positive they’re classifying contractors correctly.
The number of contractors hired by small businesses has increased steadily over the past year. Now, about four out of every 100 people hired by small businesses are independent contractors.
Given that increase, experts say the IRS is likely to step up its enforcement to find employees who are misclassified.
Here’s what the IRS looks at to tell the difference between an employee and a contractor:
- Degree of control — With contractors, employers only have a say in the results of their work. Employees, on the other hand, can be told how, when and where to do their jobs.
- Types of payment — Generally, contractors are responsible for covering their own expenses and take the risk of making a loss or profit from their work. Also, they’re usually paid a flat rate for the completion of a project. If expenses are covered and wages are paid regularly, you’re likely dealing with an employee.
- Length of time — Contractors are usually expected to work temporarily — for a certain amount of time or for a specified amount of work agreed upon beforehand. Employees are generally hired indefinitely.