Worker Classification Do’s and Don’ts
I was recently asked by the Massachusetts Society of CPA’s to do a presentation on worker classification. This is the age old dilemma of classifying workers as either W-2 Employees or Independent Contractors. The presentation went over really well and I created a leave behind with the following Best Practices tips. I’ve edited it slightly for a more general audience.
This is a very complex subject and I run into many startups in particular which ask many questions about hiring workers or independent contractors. New laws from the IRS, Massachusetts, the Dept. of Labor and OSHA all make it increasingly difficult to classify workers as independent contractors. The seemingly primary rule which threads through the Federal and State Laws is all about Control. If you can control how and when someone is doing a project for you, that person is likely an employee.
As we like to say here in Massachusetts, which has arguably the most employee friendly laws for classification:
If it looks and smells like an employee, it probably is!!!
The rules are very complex and the fines for not properly classifying are onerous. Before calling your workers Independent Contractors you should take a hard look at the following best practices and feel free give me a call to discuss, along with your attorney and your accountant.
THE CPA’s payroll partner
Independent Contractor Best Practices
Steer clear of doing any of these:
- Treating the workers as employees (for instance providing business cards or employee perks/benefits).
- Setting hours (it’s recommended to set start and completion dates for the project).
- Providing office space, computers, and tools (you could charge for them).
- Assigning fill in work.
- Prepare a written agreement for independent contractors addressing most of the important criteria.
- Stipulate that the worker is free to work for others—if you can, find out if he does.
- Compensate for the work performed, not the time required to do the job.
- Use agencies whenever feasible.
- Have workers remain responsible for their own insurance and training.
- Make it clear that additional workers needed will be provided by the contractor.
- Build travel and other costs into the contract.
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