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Do you understand worker misclassification?

As a small business owner, it's important to understand how to properly classify employees. It only takes one mistake in this area of your business to find yourself in trouble with the Internal Revenue Service (IRS) and/or other agencies.

In short, you need to know the difference between an employee and independent contractor. As an employer, making a mistake with this can result in a serious penalty. Employees are also harmed by worker misclassification, as it may mean that a person does not qualify for benefits or unemployment if he or she loses his or her job.

An employee is anyone who performs services that are controlled by the company, such as how and what type of work will be completed.

An independent contractor, however, has the right to control the methods and means with which they perform the work.

Sometimes there is a gray area in regards to whether or not a worker is an employee or independent contractor. If you have any questions or concerns as an employer, it's imperative to better understand how the law defines both classifications.

Even if there is a contract stating that a person is an independent contractor, it doesn't necessarily make it true. Instead, it all comes down to whether or not the employer is controlling how and when the work is completed.

If an employer runs into trouble regarding worker misclassification, it's imperative that they learn more about their legal rights. The same holds true for a worker who feels that he or she is an employee but is being treated like a contractor.

Unfortunately, this remains a major problem throughout the United States that causes companies and workers stress every year.

Source: Rhode Island Joint Task Force on the Underground Economy and Employee Misclassification, "Worker Misclassification," accessed June 02, 2017

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