As the U.S. economy continues to reach pre-recession levels, the general workforce is becoming more diverse and unique. Many of these changes are driven by companies who are hiring fewer people into full-time, permanent positions and instead are leaning more heavily on contract workers. Of course, this arrangement works out well for both parties.
Contractors enjoy the freedom of being able to set their own hours and work on a wide variety of projects with different companies. From a business perspective, employers enjoy using contract help because it is substantially cheaper than making permanent hires. Typically, these individuals are paid a set fee that doesn't require organizations to absorb additional financial responsibilities such as employee health insurance and retirement benefits.
The use of contract workers can often be seen as win-win situation. However, companies employing these individuals need to make sure that they are properly classified or ace exorbitant fines and penalties. Misclassification is something that happens inside of many companies, often leading to disastrous outcomes. To guard against this, here are some best practices for organizations to ensure they follow established guidelines for properly categorizing contractors on local, state and federal level:
- Adherence to working hours: According to Business News Daily, if a company requires an individual to follow all of its internal policies, including being in an office for a set period of time, this person should be considered as an employee. However, if a business allows someone to come and go as they please and are not required to adhere to certain rules that have already been set up within an organization, then this adequately qualifies a person to be categorized as a contract worker.
- Type of work performed: The Internal Revenue Service states that if a person works for one company, and if the organization trains an individual and controls the type of work that he or she performs, then this meets the classification of a traditional employee. Independent contractors given the right to control the results of any work performed, as well as how the task should be best accomplished.
- Tax forms: Contract workers are required to fill out form 1099 which indicates how much a company paid a person for services rendered. Full-time employees must complete a W-4, which calls for both state and federal withholdings to be deducted from any compensation they receive.
