The IRS in recent years has been reminding employers to review and clarify their employee classifications in California and other states. In many cases, these classifications are incorrect. Employers are treating workers like independent contractors when they should actually be treated as traditional employees. This poor classification can have both economic and legal ramifications for many businesses.
Types of employees
Employees are individuals who work either part-time or full-time for a company. They are entitled to a certain amount of benefits, minimum wage, and hour protections. These protections can be particularly expensive for some companies. Therefore, they often attempt to avoid these parameters by hiring independent contractors.
These men and women work flexible schedules and are paid a rate negotiated ahead of time. They often work in a way that is not the traditional schedule of an employee. There are occasional contracts and infrequent projects. When someone who is supposed to be an employee is instead treated like an independent contractor, this misclassification can cause problems with regulators and within a company.
Importance
There are several different reasons for employers to prioritize this designation. One is the ability to relay accurate information to regulators. These regulators could fine or otherwise penalize a company that is improperly identifying its workers. It can make sure that the company suffers reputational harm and has to provide back pay and benefits. In addition, companies want to make sure that they are identifying their workers properly in order to retain talent.
Many companies have complained over the past two years about the difficulties inherent in retaining talent. These difficulties can be magnified if employees are feeling cheated out of wages or benefits because they are being improperly classified. Proper classification helps employees feel like they are part of a team and are being treated with the utmost fairness by their employers.