Worker Classifications Matter!
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No matter what profession you’re in, you need to know how to classify a worker, whether they are an employee or an independent contractor. If you haven’t already hired one of these, you probably will at some point in your business lifetime. So it’s important to understand the difference between an employee and an independent contractor. An employee, sometimes called a W-2, is run through payroll. Their taxes are withheld from their pay and you submit those taxes to the government. You also pay your portion of those taxes. There’s also unemployment or reemployment benefits for the employee and you also pay for those. Workers comp insurance relates to employees and employees are sometimes given training. They’re maybe perhaps given some benefits, paid time off, some insurance. But most importantly, employees are given legal protections. Independent contractors are not. They get none of those things. Independent contractors, you just pay them a straight um, whether it’s hourly or a flat fee. You just pay them their straight fee and then they pay their taxes and they get no benefits at all that the employees get. So why do you care? Well, the government cares and so should you. So the government will look at whether or not you have classified these workers correctly, because the IRS, of course, as one of the agencies, wants to receive their taxes. So, as you have paid for the employees and you submit the employee’s portion, the independent contractors have to submit their own. And the IRS needs to know that. For unemployment, this is most typically where it arises. The Florida Department of Revenue issues out unemployment benefits. So if a worker files with FDOR for unemployment benefits, they’re going to assess the classification of that worker, whether or not they were classified as an independent contractor or an employee. So if you have an independent contractor who files for unemployment, they technically should not get those benefits. But if FDOR determined that you misclassified that worker, they will get those benefits and you will then have to pay for that. The US. Department of labor is another agency that assesses workers and that is for the legal benefits. So, legal protections are given to employees, but they’re also protected for overtime pay, health care benefits, workers comp, and retirement plans. So those are the types of benefits that are given to employees that are not given to independent contractors. Because independent contractors are so easy to hire, many small businesses hire them without doing this classification. The US. Department of Labor has issued several news releases recently that have outlined the penalties that they’ve given to some small businesses for classifying workers as independent contractors when they should have been employees. So be very careful. It does seem easy to hire independent contractors, but you do have to do this analysis to classify them correctly. We have many resources on our website and we can help you classify them if you would like our help.
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