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Hiring in the US? 7 Ways to Reduce the Risk of Employee Misclassification

Posted by Anna Mastrandrea

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Dec 19, 2018 9:00:00 AM

Hiring_in_the_US__X_Ways_to_Reduce_the_Risk_of_Employee_MisclassificationInternational hiring is often a challenge for businesses looking to expand into new markets. Even established businesses can sometimes run into trouble when it comes to finding the right people.

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One of the most common challenges is employee misclassification.

There are penalties for misclassifying employees as independent contractors, so you’ll want to be particularly careful about this. Luckily, there are many ways you can reduce your risks.

1. Know the Definitions Pertaining to Employee Misclassification

The first thing you should do when it comes to employee misclassification is to ensure you understand the terms and how they’re used. Who qualifies as an employee? Who should be classed as an independent contractor?

Generally speaking, employees work for you. They have relatively little say over the tools they use or the processes established. They will use your equipment and work on site as well.

Independent contractors, by contrast, have much more say over processes, tools, and even location.

2. Establish an Assessment Process

Once you understand the definitions and how different workers should be classified, you can begin assessing the people you’re hiring and working with.

The assessment process will help you accurately identify each and every worker. It’s a useful tool to employ during the hiring process, as well as throughout an employment contract.

3. Create Guidelines for Hiring Contractors

Your assessment process will help you identify who is an employee and who’s acting as an independent contractor.

How do you go about hiring contractors? You should establish some guidelines to help you move through the process. Good guidelines will help you not only determine who is a contractor but also how you should complete the hiring process.

This can include information about what documents the contractor needs to sign, their responsibilities, and more. Review your contracts and make sure everything is in good legal standing.

4. Conduct an Internal Audit of Your Workers

If you’ve been hiring in the US for some time, you may have some misclassified workers. It’s not a bad time to conduct a review of those who are already working for you.

An internal audit will help you identify any cases of employee misclassification. Then you can take steps towards correcting these cases.

5. Manage Contractors and Employees Differently

Remember the key differences between employees and independent contractors in the US. Employees have much less control over how their work is completed. You’ll often supply them with what they need for the job. Contractors, by contrast, have decision-making power over many aspects of a job.

You’ll need to employ different management styles for these two types of workers. If you try to manage employees as contractors, or vice versa, you may run into issues.

6. Form a Team to Handle Issues

An employee or contractor who feels they’ve been misclassified can go to the IRS and request a review. This triggers an investigation. You can also ask for a review, especially if a worker insists on claiming benefits you don’t believe they’re entitled to.

If possible, form a team to handle complaints. This expert team will help workers understand classification. They can also help with assessments and internal audits.

7. Work with a PEO

Perhaps the best thing you can do when it comes to avoiding employee misclassification is to work with a knowledgeable professional employer organization. They can assist you with independent contractor classification. They’ll also review contracts and ensure compliance with the law.

Talk to the experts, and get one step ahead of employee misclassification.


Topics: Compliance

Anna Mastrandrea

Anna Mastrandrea is the team lead of the payroll department at The Staffing Edge. For over 10 years, Anna has been providing the highest level of customer service to our members. Anna is an important part of our back office operations, running payroll for all of our members assignment employees, ensuring all proper payroll deductions have been set up, billing clients, and processing record of employment and filings to Service Canada. Her goal is to make sure all of our members assignment employees are paid properly, and most importantly, on time. Anna’s passion for challenges, learning, and problem solving makes her a great asset for our members, as no one member’s situation is ever the same. When Anna is not on the job, she enjoys spending time with her family, indulging her love for great wines, and playing volleyball.
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