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5 Quick Tips about Employee Misclassification

Posted by Karen McMullen

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Jul 25, 2016 9:00:00 AM

5_Quick_Tips_about_Employee_Misclassification.jpgEmployee misclassification sounds confusing, but really it’s just a long winded term for mislabeling an employee’s job description. Some businesses do this on purpose to exploit workers and cut costs and other businesses do it by accident. Below are some fast tips on why it’s illegal and how your business can avoid it.

1. Full-Time Employees Can't Be Contract Workers (and Vice Versa)

An exorbitant amount of people in the U.S. and Canada make ends meet by taking contract jobs. The growth in full-time freelance and contract work is overshadowed by the sad reality that employee misclassification is also on the rise. It’s expensive for businesses to give full-time employees the proper pay, special benefits, and tax deductions they’re entitled to. For this reason, many choose to exploit and illegally hire contract workers to do the same work as full-time employees, but without any of the perks.

Employers may be misclassifying workers if their contractors:

  • Are working the same hours as employees
  • Are fulfilling the same tasks as employees
  • Don’t have time to take on other clients
  • Don’t have control over their work
  • Don’t have control over their pay

2. Misclassifying Employees Carries a Steep Price

If businesses don’t wise up and take precautions to ensure they aren’t taking advantage of employees, they run the risk of being charged by governing bodies. Government organizations like the Ministry of Labour are becoming stricter at enforcing labor laws, but the ramifications of misclassification aren’t always clear. If you intentionally misclassify an employee, you could be fined or charged with fraud. If you do it accidentally, you’ll still have to deal with the ramifications.

At the end of the day, there are also social repercussions to crimes relating to employee misclassification. When companies of any size exploit employees, they often become the subject of national headlines. People also take a stand through social media and the internet. There are even sites like Glassdoor that help warn job-seekers about dicey companies. Former workers can write negative reviews about places they’ve worked at, tarnishing corporate reputations.

4. Unpaid Internships and Volunteer Positions Can Also Be Exploitative

Too often, young people and other job-seekers are told they need to gain unpaid experience before they can be afforded the privilege of being paid for their work. However, “volunteer” work positions and unpaid internships are increasingly scrutinized by labor lawyers and journalists who argue that this work is exploitative and unfair.

Unfortunately, many companies manage to find legal loopholes that let them get away with hiring temporary workers to do the same work as paid employees. These businesses are not safe from legal repercussions of their actions and cutting corners often tarnishes their social standing. It’s best to avoid these outdated practices and be the face of change.

5. Payroll Providers Can Prevent Employee Misclassification

Sometimes businesses, including start-ups, aren’t familiar with all of the legal procedures involved in hiring new employees. For this reason, it can be extremely beneficial for local and international companies in Canada to partner with payroll providers who are committed to helping them hire new employees and negotiate pay and benefits. These outsourced companies also take on other unique services. They’ll conduct internal investigations when necessary, file taxes, and manage legal issues. The bonus? It’s all done by the books.

Find additional tips about employee misclassification on The Payroll Edge resource page. If you’re interested in outsourcing a trusted payroll provider to manage job descriptions, payroll duties and more, contact us today!

What Are You Leaving to Chance by Handling Payroll on Your Own

 

Topics: Employee misclassification

Why Employee Misclassification Is Bad for Business

Posted by Shannon Dowdall

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Jul 8, 2016 9:00:00 AM

Why_Employee_Misclassification_Is_Bad_for_Business.jpgMistakes can and do happen in every workplace. But employee misclassification is a notoriously prevalent error with as much as 30 percent of American businesses misclassifying their employees. The consequences for employee misclassification can be serious, including having to pay unremitted taxes and hefty fines plus interest.

Whenever an employer makes the argument that it's more cost-effective to classify workers as independent contractors, it's a clear flag for employee misconduct. Even if it's just an accident, no one wants to be caught in an awkward situation when a worker demands the benefits they are entitled to as an employee.

Here are some tips to help you avoid employee misclassification.

It's Worth the Time to Classify

Classifying a worker as an employee can be seen as a hassle. After all, employers delving into the world of payroll regulations and legislation can be prone to errors without a team member experienced in payroll compliance. Tax deductions, CPP and EI contributions, regulations for overtime holiday pay, leave, and health insurance can leave you feeling drained and frustrated if you take on the responsibility of filling out the paperwork yourself.

That's why hiring employees as independent contractors may seem like taking the easy way out. After all, you only need to have the worker sign a contract, and they will deal with their own taxes, right?

Depending on the work that this employee is assigned, though, they may feel entitled to more benefits and insurance. If they make an appeal, all that time and money you thought you saved by hiring a contract worker is going to be spent on a legal team and fines. And you'll still have to fill out the paperwork in the end.

To be fair, classification is complex and you may worry you'll make mistakes no matter how hard you work. This is why it pays to hire an employee with a comprehensive knowledge of payroll compliance who will be able to fulfill all the necessary paperwork regarding classification and employee taxes. Remember, it's key for you or the team member you employ for worker classification to know the difference between an employee and an independent contractor.

Outsource to Avoid Misclassification Errors

An alternative to the DIY option is to outsource to a Professional Employment Organization (also known in Canada as an Employee of Record). If a permanent in-house payroll clerk is too costly of an investment, then it's worth considering the services of a third party payroll provider to avoid costly employee misclassification.

Saving you both time and money, A PEO will let you focus on your business goals by taking care of the mundane but essential tasks related to HR and payroll, and by keeping you informed about the process. They'll stay up to date with legal compliance for you, so you’ll never have to worry about whether you're making another mistake related to employee misclassification.

7 Signs It's Time to Outsource Payroll

 

Topics: Employee misclassification

Why Worker Classification Matters

Posted by Corinne Camara

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Mar 14, 2016 9:00:00 AM

Why_Worker_Classification_Matters.jpgLately, there's been a great deal of talk surrounding worker classification, and it seems like the more we discuss it, the more questions that are raised. As the Canadian Revenue Agency continues to crack down on non-compliant companies, many are beginning to scramble to correct any mistakes in their filings, research new laws, and try to keep up with the ever-changing workforce to boot. In the end, even companies that have been able to keep up might find themselves wondering what difference it really makes and why worker classification is such an important issue.

Avoid Complications

First and foremost, it’s important to focus on ways to avoid business complications, and in terms of worker classification, it's critical. Classification is inherently tied into your taxes—meaning it directly affects your budget and credit rating with the CRA. The classification of your workers is a core part of your business, whether you acknowledge it or not. When you misclassify a worker, intentionally or by mistake, you are essentially lying to the CRA. The consequences could be huge. Not only does it tend to cost you a great deal in terms of owed taxes and premiums, it's an issue of legal compliance as well. As a company that intends to maintain a sterling reputation, it can be painful to end up with a black mark, especially for something like an honest mistake in filing.

Consider what would happen if you classified your contractor as an employee, if only to simplify things—you end up having to do a great deal of extra work in terms of various deductions such as employment insurance and pensions, pay out vacation, overtime pay, and more. Likewise, if you classify an employee as a contractor, you're not only skipping those fees, but also hurting your employee who isn't getting what is legally entitled to them. This can open your business up to a great deal of legal conflict—even if you forget about provincial courts and CRA penalties, you can be liable in other ways. Some companies accused of having cheated on their worker classification have found themselves on the wrong end of major class action lawsuits, which not only threatens their reputation, but their foundation as well. Compliance is probably everyone's least favourite aspect of business, given how many ever-shifting laws can apply, but it's arguably the most critical.

Benefits Employers and Employees

It's easy to see how proper classification can help an employer. The more accurate the filings, the less likely they are to see legal trouble down the road, whether it's related to taxes, human rights codes, labour laws, or employment policies. By being clear and honest with the CRA, you earn a place of trust among businesses and stay far out of trouble's way in the interim, meaning you have less to worry about overall. Frankly, the less a business has to worry about, the more they can concern themselves with their core objectives.

As for employees and contractors, they also want to be classified correctly and not just because it helps the company. When an employee is classified as an employee, they're secure in knowing they're protected under the law. This means they enjoy basic legal benefits like vacation and overtime pay, protection under local and provincial labour and employment laws, and more. When worker classification goes awry, much of those comforts are taken away and it can seriously impact not just the morale, but also the lives of the employees. Contractors similarly are afforded some freedoms that employees don't otherwise have. There are distinct differences in each class or worker, and as such, distinct rules to follow. It can hurt everyone when classification is done incorrectly.

What Are You Leaving to Chance by Handling Payroll on Your Own

Topics: Employee misclassification

What Are the Penalties for Employee Misclassification?

Posted by Karen McMullen

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Mar 7, 2016 9:00:00 AM

What_Are_the_Penalties_for_Employee_Misclassification.jpgWe've heard a great deal about employee classification (and employee misclassification) in recent months—the differences between each category of worker, what those categories mean for a business, and how each interacts differently in the workplace. Even so, there are still a lot of unanswered questions. We know that employee misclassification is wrong (simply labeling a worker a contractor does not a contractor make), but just how bad is it? If a company is found doing it, whether intentionally or not, what exactly are the consequences?

Paying Outstanding Premiums, Penalties, and Interest

The Canadian Revenue Agency has been cracking down on employee misclassification, and for good reason: a lot of payroll and human resources work for proper employees is not necessary for contractors, which has some businesses hoping they can dodge the cost and effort by misclassifying. However, when failing to deduct proper income tax, pension plan contributions, and employment insurance premiums, the consequences can come back to haunt a company in big ways. Namely, financially.

A company that's engaged in employee misclassification will find themselves having to pay all unremitted taxes back to the CRA, both the employee and employers share of unpaid premiums, in addition to hefty penalties—with interest. This goes for any unpaid overtime, vacation pay, and parental leave.

Class-Action Lawsuits

Like at least one major company in the last little while, employee misclassification can open up a business to a class action lawsuit. This can mean wrongful dismissal claims from employees classified as contractors (as dismissal is generally handled differently in each case), back severance pay, and, as mentioned, any missed payments and premiums that are owed. Not to mention that the massive amount of bad press following a lawsuit can permanently taint a company. Would you want the name of your company immediately associated with employee misclassification?

Provincial Investigations and Court

Because the designation of an employee's class is largely a legal issue, naturally a great deal of trouble can be found in court. An employer is generally required to be registered with the Workplace Safety and Insurance Board, and to pay workers' compensation premiums. That said, companies with hired contractors don't need to worry about compensation premiums. In the case of employee misclassification, where a company might label their employee as a contractor to avoid fees, the backlash can include a formal investigation—if found guilty of a provincial offense, it will be a black mark on not just your record and reputation, but your wallet as well. Often the fines, premiums, and interest are enough to sink a previously successful business.

The Solution

As you can see, there's little forgiveness when it comes to misclassifying an employee or contractor in the business world. Whether it's done intentionally to try and cut costs, or as an honest mistake, you are still held accountable. Paying the price for an uninformed mistake can be scary—so what exactly can be done about it?

When you work with legal experts, PEOs (professional employer organizations) or EORs (employers of record), you're working with people who ensure that they know the intricacies of classification rules and can make the process of compliance efficient and easy to abide by. By staying current on new laws and following precedent-setting cases, these experts will ensure your company is compliant with all classification policies, no matter how complex. This takes a great deal of pressure off of human resource departments all across the country and keeps you protected from serious legal recourse. Consult a PEO today and find out how secure they can make your classification.

What Are You Leaving to Chance by Handling Payroll on Your Own

Topics: Employee misclassification

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