Independent contractors – sometimes referred to as freelancers, consultants, ICs, per diems, 1099s, contractors, project workers, specialists and the like – are found in virtually every industry. Some companies use independent contractors to supplement their workforce, while other businesses have been built on an independent contractor or 1099 model and classify relatively few workers as employees. We see this happening due largely to the “gig” or “sharing” economy using the “on demand” business model.
Connie Wendt, VP Compliance & Relations of ClearPath Workforce Management, says, “I’ve heard some companies referring to “freelancers” and “independent contractors” as if they are two separate types of workers.”
Don’t be misled
This can be misleading and put your organization at risk for worker misclassification, audits, fines and penalties. Just as independent contractors are being used across a wide range of industries, the misclassification of “employees” as “independent contractors” is not industry-specific, although misclassification is more prevalent in certain industries.
Just because your organization calls them a “freelancer” and pays them on a 1099 vs. W-2 “employee” basis doesn’t necessarily make it so. The use and misuse of independent contractors have increased dramatically over the past two decades. This has been due, in part, to the economic and other business advantages derived from the use of independent contractors and lenient regulatory enforcement.
Connie Wendt continues, “I don’t think we can discount the basic confusion within organizations over misleading and misunderstood use of terminology.”
Independent Contractor Misclassification
There are a considerable number of reasons that have led companies to classify a host of workers as independent contractors, even though such workers may fall within one or more of the definitions of “employee” under the labor, tax, and/or benefit laws. There are costly consequences of misclassification. Independent contractor misclassification liability can be crippling to most organizations, regardless of whether the employees have been mistakenly or intentionally misclassified.
If you believe you may have misclassified workers as independent contractors, ClearPath can assist you in determining if your company may be at risk, and provide solutions to ensure compliance. ClearIC™ can automate and simplify the Independent Contractor evaluation process while mitigating your risk. Contact ClearPath for a complimentary 1:1 review of your current worker status.