May 19, 2010Client Alert

Independent Contractor Classification: More Bad News for Business

Those who are following recent employment law developments know there is a national trend toward pushing workers out of independent contractor status and into employee status. The reasons behind this trend are several. The most often cited reason is revenue. State and federal taxing entities consider deductions from employee paychecks to be a more consistent and reliable method of collecting tax revenue than receipt of quarterly estimated tax payments from independent contractors. Additionally, some employee advocates consider classification of workers as independent contractors to be a “dodge” to get out from under various employment laws. Significantly, organized labor typically views independent contractor relationships as a way to avoid union organizing efforts. Wisconsin recently enacted a new law, which fits the national trend of state and federal laws penalizing misclassification of workers as independent contractors. 2009 AB 929 creates a $25,000 fine for any misclassification of someone engaged in painting or drywall finishing of buildings or other structures, where such misclassification is done “willfully and with intent to evade any requirements of this chapter.” The laws covered include income tax, worker’s compensation, unemployment insurance, and employment discrimination laws.

If the intent of the law is to encourage employers to carefully analyze their classification of workers, the law is unnecessary. The stakes for misclassification were already extraordinarily high. The “best practices” for employers remain the same:

  1. Audit your workforce to determine what workers (if any) are currently classified as independent contractors.

  2. Audit the current population of independent contractors to determine which (if any) are misclassified.

  3. Audit the business’ methods for retaining contract talent, to determine whether those processes are adequate to insure that a proper determination is made in each case regarding employee/independent contractor status.

  4. If it is determined that the current on-boarding process for contract talent is inadequate, determine what additional training or process modification is necessary, and implement. If necessary, obtain outside assistance, or subcontract portions of the determination process.

  5. Carefully determine a method for reclassification of any misclassified workers (if any).
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