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Make sure to classify workers correctly

On Behalf of | Oct 3, 2019 | Business Law

Businesses that hire workers in Indiana have a lot to consider. Options for hire typically include employees and independent contractors, and there are benefits to each depending on the specific company or project. Employers must ensure they classify the workers correctly or else they can face strict penalties.

According to the IRS, there are three categories to consider when deciding how to classify a worker. One is financial control. An employee receives an agreed-upon hourly wage or salary, and the employer pays for supplies, equipment and other expenses related to performing the job. The employer is also responsible for certain taxes and insurance coverage. In contrast, an independent contractor is responsible for paying for their own supplies, equipment and expenses. Their pay is often a flat fee with no taxes taken out, and an IC must pay his or own taxes at tax time.

Behavioral control is another category. An employer has a lot more control over employees in regard to training, instruction, hours of work and evaluation systems. An independent contractor can choose when and where to work as well as the steps to take for project completion. 

The type of relationship is another indicator of worker classification. An employee typically has a more permanent position and receives benefits such as sick pay, vacation time, health insurance and retirement benefits. An IC does not receive these benefits and usually only works for the employer for a specified period of time or until project completion. An IC, however, may also work for multiple companies at one time.

Some employers classify a worker as an independent contractor when they are really an employee, and FindLaw outlines consequences associated with this misclassification. These include back wages for overtime, back taxes and additional penalties such as punitive damages.


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