Independent Contractor Management- Are They IC's or Aren't they?

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The Fines And Penalties Associated With Employee Misclassification Can Be High

The growing trend of using independent contractors to supply your company with needed resources over clearly established time frames or for specific project fulfillment has not been overlooked by all levels of government involved with income taxation. This growing segment of the workforce represents a significant revenue source for governments with the result that they have embarked on a campaign of higher scrutiny to ensure that both the workforce is being fairly treated and that the government is receiving the appropriate income based contributions.

In this environment companies need to make certain that their independent contractors are properly classified in order to avoid both the penalties and fines associated with misclassification as well as legal costs in the event that you determine it's in your interest to contest a governments opinion and by the way, ignorance is not a defence! What's the best way to avoid this problem? Be sure that your independent contractor management process includes a thorough review of the IC's engagement. What to look for?

4 Key Evaluation Points in the Determination of an Independent Contractor

Although there are many other points that can be used to establish whether the worker is an independent contractor or employee, these 4 points are the first to be considered. If there is any doubt many layers could be added to clarify your company's relationship with the worker.

1. Control - Does your company determine the wage / salary? Do you determine the place, time and manner in which the work will be done? If you answered, "yes", this relationship would suggest the worker is an employee. On the other hand, if the worker is free to determine where, when and how the work is to be done, this would be more of an independent contractor relationship.
2. Tool ownership - Does your company 'equip' the worker with the tools needed to complete their work? If "yes", this is an employee type of relationship. If the worker is required to supply his own tools, for example computers, phones, large construction tools etc. this would lean to the independent contractor model relationship.
3. Chance of profit / risk of loss - Does this worker have an opportunity to make a profit or alternatively is there a risk for financial losses? If "yes" again this would suggest an independent contractor relationship and if not more of a typical employee relationship.
4. Integration - If the worker in question has integrated your business needs into their own business activities, then again, an independent contractor relationship probably exists.

If you think there are grey areas, there are! Regardless, it's very important that your company determine the status of the working relationship between itself and any contracted workers in order to avoid the costly fines and penalties associated with misclassification of this growing workforce segment. In an upcoming post we will present further points to help you determine if your workers are true independent contractors or employees and also be outlining some of the important steps in onboarding new contractors. Stay tuned!

As the IC workforce grows what are the implications and preparations your company needs to address?