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Use caution classifying workers as independent contractors

Small business owners typically have limited resources, so they look to save money wherever they can. The less they spend on running their businesses, the greater the chances of turning a profit. One burgeoning way to reduce overhead is hiring independent contractors whenever possible. Perhaps you have taken advantage of this growing business trend.

The kinds of services an independent contractor can supply are limitless. However, if you have or plan to use contract workers in your business, you would be wise to understand exactly what it means to be an independent contractor. These workers have certain protections under New York and federal law, and misclassifying an employee as a contractor could lead to serious legal entanglements for your business.

What is an independent contractor?

Perhaps the benefit that is most enticing to employers considering hiring independent contractors is that employers do not need to provide benefits for contracted workers. This includes health care, unemployment insurance and workers’ compensation. This could be a tremendous savings for you. However, if you wrongly classify an employee as a contractor, denying him or her these and other benefits may be disastrous for you and your business.

Unfortunately, there is no clear definition of an independent contractor, so it can be easy to make a mistake. In general, your worker is an employee and not an independent contractor if you have control over the worker’s schedule, tools and methods of performing the job. If your worker provides similar services for other businesses or has a separate business for providing these services, there is a good chance he or she is an independent contractor.

Up against the wall?

At some point, you may face a situation where your decision to classify a worker as an independent contractor may come into question. You may face an audit by your workers’ compensation insurance provider, or you may have a worker who suffers an injury on the job. Either of these cases could end badly if you have wrongly classified a worker as an independent contractor.

If you are currently facing such a situation, you may feel you are in over your head. The legal complexities of workers’ compensation insurance can be confusing, to say the least, and you certainly do not want to make a mistake that could place your future at risk. Seeking counsel from an attorney with experience assisting small business owners who are dealing with administrative issues related to workers’ compensation may be a step in the right direction.