According to this Crains Cleveland Business article, the Wage and Hour Division of the DOL has been particularly active in the past couple of years. $25 million dollars may be budgeted for next year to continue efforts to uncover employer errors and misconduct. Misclassification of workers is a common area of concern since the rules for proper classification can be quite complex. Businesses of all sizes may find that they have been incorrectly classifying workers – with disastrous consequences.
As with any government auditing process, potential fines and penalties are only part of the financial picture. Years of back pay (including interest) may be due to misclassified employees. The employer’s portion of income taxes, unemployment insurance, and workers’ comp premiums may also need to be paid. Even if they are not found at fault, businesses face administrative costs during an audit. Producing the records required by investigators can consume significant resources – especially on short notice for employers who are ill-prepared. Plus, as author Michelle Park points out, appealing the results of an audit can be a lengthy and expensive process involving steep attorney’s fees.
Classification Starts with Onboarding
Just because a company has classified a particular type of job as “independently contracted” in the past does not mean this practice should continue. With the shift toward e-commuting, the lines between independent contractor and employee are blurring more than ever. When a company hires a person to work online from home, this doesn’t necessarily mean they are not under the supervision and control of the employer. This aspect of how work is accomplished remains a key factor in determining classification status according to IRS rules.
Independent contractors who are onboarded should be provided with an agreement that clarifies the nature of the client/contractor relationship (the use of a 1099 is not generally sufficient to explicate this relationship). Such a document makes it clear that the contractor is in full control of how the commissioned work will get done.
Company policies regarding harassment and safety may apply to the contractor as they do to employees for times when the contractor is performing work on-premises or representing the company in off-site transactions. However, it may be safest to have separate versions of each policy for contractors to sign to avoid language that refers to the signor as an employee. These are all questions HR should explore with legal counsel to ensure there is a clear distinction between onboarding contractors and onboarding new hires.
How Can Onboarding Software Help?
Universal Onboarding can be useful for classification because HR can automate which set of forms is presented for each type of position. This ensures that employees and independent contractors aren’t given the wrong forms by mistake. In addition, there is no limit to the number of policy agreements and acknowledgements that can be uploaded (and it does not impact the monthly subscription fee). This makes it possible for HR to cover all the bases with customized forms for every situation.