Author: Leonard K. Samuels; Berger Singerman LLP (Florida, USA)
Both the Department of Labor and the IRS are cracking down on companies improperly classifying workers as independent contractors, who are actually employees. If a misclassification is found, the Department of Labor will require a company to pay minimum wages and overtime, and possibly liquidated damages which will double the amount owed. The IRS will require the payment of back taxes and may assess substantial penalties. Improper classification also has implications for unemployment taxes, workers compensation and participation in 401(k) plans and other company benefits.
The Eleventh Circuit Court of Appeals, the court right below the United States Supreme Court that oversees appeals emanating from Federal Courts in Florida, Georgia and Alabama, ruled on Tuesday, July 16, 2013, that technicians who install and repair cable, internet and digital phone services were improperly classifed as independent contractors. In Scantland v. Jeffry Knight, Inc., 721 F.3d 1308 (11th Cir. 2013), the Court stated that the proper analyses under the Fair Labor Standards Act was to look at the economic reality of all of the circumstances concerning whether the worker is economically dependent
- the nature and degree of the alleged employer's control as to the manner in which the work is to be performed;
- the alleged employee's opportunity for profit or loss depending upon his managerial skill;
- the alleged employee's investment in equipment or materials required for his task, or his employment of workers;
- whether the service rendered requires a special skill;
- the degree of permanency and duration of the working relationship;
- the extent to which the service rendered is an integral part of the alleged employer's business.
You may initially save money by classifying workers as independent contractors. In the long run, misclassification can be devastating, leading to audits, penalties, lawsuits and substantial unforeseen costs. The short-term reward is not worth the risk.
