This summer the U.S. Department of Labor (DOL) issued Administrator’s Interpretation No. 2015-1, which discussed misclassification of employees as independent contractors. Federal and state governments are beginning to take more initiative to investigate employers and businesses that wrongly classify their employees as contractors to avoid payroll tax.
There are a number of factors that employers should take into consideration when determining the status of their workers. One of the tests that employers should consider is the IRS 20 Common Law Factors Test. In the Administrator’s Interpretation No. 2015-1, issued in July, the DOL has narrowed the definition of independent contractor by also focusing on how economically dependent a worker is on their employer or in business with themselves. They encourage employers to also look at the Fair Labor Standards Act (FLSA) Economic Realities Test.
It is also important for employers to be aware of classification factors that are specific to their state. ChurchShield offers our payroll clients a Human Resource Knowledge Base option that gives our clients access to the latest rules and regulations for employee classification, as well as, an Independent Contractor Classification Assessment tool. The HR Knowledge Base system can help keep clients from exposing themselves to unexpected liabilities and penalties.