Career

Employee vs. independent contractor: the cost of mislabeling

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While many workers are content with job stability and employee benefits, a growing number are becoming independent contractors in favor of working nine-to-fives. Greater flexibility, according to studies, does improve happiness and productivity after all.

Companies also benefit from independent contractors, relying on their short-term help and outside expertise at a fraction of the cost of hiring an employee. However, there are companies that treat independent contractors as though they are employees, which puts the business in legal jeopardy.

According to the Internal Revenue Service (IRS), independent contractors are considered self-employed workers and provide services without the company having extensive control over what the worker does, where the job is done or how it is done.

The greater the amount of control the company exercises, the more likely the independent contractor would legally be considered a common-law employee. In such cases, the company is responsible for withholding and paying certain taxes for the worker.

The pros and cons of being an independent contractor

There are important differences between employees and independent contractors. Employees typically have schedules, fixed paydays and at least some benefits, with the company sharing the burden of employees’ Social Security and Medicare taxes. As an employee, your income is also subject to income tax withholdings.

The drawbacks to working for someone else include an inflexible schedule, having to commute to an office and bosses dictating your daily work.

Independent contractors set their own schedules, but with additional flexibility comes more risk and responsibility. Although you are able to dictate your own work, this regularly requires working longer hours to find clients. Many independent contractors also spend a fair amount of time invoicing clients and awaiting payment. Furthermore, those who are self-employed bear the full employment tax burden and the costs of health insurance.

Despite these responsibilities, independent contractors often prefer freedoms like working with multiple clients at once and working from the comforts of wherever desired.

How companies mislabel employees and independent contractors

Many companies are hiring independent contractors and imposing limits to their independence, while avoiding payroll taxes. They are dictating independent contractors’ schedules, supervising their work and requiring them to work inside the company’s office, basically treating the worker as an employee.

A worker is either an employee or an independent contractor and should be treated accordingly. The IRS is clear: “You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done).”

One common but often illegal practice is a company using independent contractor agreements during a “probationary period,” when the company is able to determine how well they like you before hiring you as an employee. As stated, the greater the extent of the company’s control, the more likely the worker would be considered a common-law employee. A company cannot treat you like an employee while simultaneously avoiding payroll taxes, even if it’s only temporary.

Uber and Lyft are great examples of how independent contractors should work. While these companies set guidelines and rules of conduct for drivers to follow, and also disburse payments to them, drivers are not required to follow a certain schedule or report to anyone. Drivers determine when and where they will provide their services. And since drivers are not employees, they are responsible for paying taxes on this income.

What are the criteria for determining a worker’s appropriate label?

Hiring an independent contractor should be beneficial and fair to all parties, and this is easily accomplished when laws are followed.

“Although a contract may state that the worker is an employee or an independent contractor,” says the IRS, “this is not sufficient to determine the worker’s status.” Fortunately, the government provides the following rules to assess the company’s extent of control and determine the appropriate worker classification:

  • Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
  • Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
  • Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

The IRS recommends businesses consider all of these factors to determine the correct classification, and can also determine workers’ statuses for the business if it is still unclear.

The cost of mislabeling or misclassifying a worker

If it is determined that an employee is misclassified as an independent contractor, a company can face a number of penalties by both the Department of Labor and the IRS, including being required to pay back-taxes and interest on wages. Misclassified workers may be able to retroactively claim employee benefits as well.

There have also been many class action lawsuits due to the mislabeling of independent contractors, resulting in multimillion-dollar settlements from companies like DoorDash and FedEx. However, some businesses qualify for relief from federal employment tax with reasonable basis defined under the IRS’ Section 530.

Remedies for workers who are mislabeled

If you signed an independent contractor agreement but are being treated like an employee, there are solutions. First, you should speak with the company and explain what you’ve learned about worker classifications. Hopefully, the company will take action to investigate and, depending on their findings, agree to reclassify you and pay applicable taxes.

Second, you can get the IRS involved. Misclassified workers can file Form 8919, Uncollected Social Security and Medicare Tax on Wages, to report the share of uncollected Social Security and Medicare taxes the company should owe. The IRS may contact the business to investigate before arriving at their determination, which can cause tension between you and the company. A third option is to file a complaint with the Dept. of Labor.

Let’s be clear: correctly classifying workers is the employer’s legal responsibility.

Employers who mislabel workers may participate in the Voluntary Classification Settlement Program, allowing you to reclassify workers as employees for future tax periods, “with partial relief from federal employment taxes for eligible taxpayers that agree to prospectively treat their workers (or a class or group of workers) as employees.”

Independent contractors are vital to businesses across many industries. With more workers becoming contractors, it is imperative to understand classification. For employers, mislabeling a worker can be costly, legally and financially. As an independent contractors, you have to fight for fairness and your independence, which affects your ability to thrive as a self-employed worker in the long run.

For more information on the rights of independent contractors and employees, visit irs.gov. Please understand that this is not considered legal advice but a discussion of information provided by the IRS.

The keys to successful and efficient business emails

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Email is the most efficient and reliable form of business correspondence, especially when used correctly. Nearly everyone has at least one email address, while some of us have a dozen or so. (Yes, don’t judge.) From planning meetings to discussing classified foreign policy, having email at our fingertips is almost too convenient at times – just ask Hillary Clinton.

In order for email to be efficient, there are important rules of etiquette to follow. The three keys to a successful business emails are relevance, concision and clarity. First, you must make clear to the reader how your message is relevant to them. Second, you should say the most with the least amount of words. Third, be as specific as possible to minimize ambiguity and the back-and-forth.

Relevance: Know who you are emailing and why

When someone receives an email, they first determine its relevance and importance. To a busy professional overwhelmed by email, a message addressed to the incorrect person is less likely to be given an immediate response. It’s common sense: be sure to double-check the intended recipient.

If you are sending an email to an individual with whom you’ve never corresponded, be sure to address them by name. A lone “Hi” or “Good morning” says you aren’t sure of who you are emailing and you haven’t done enough research. Also, spell their name correctly. Misspelling the recipient’s name is the easiest way to make a bad impression.

Concision: Get to the point

A business email is not a love letter. Save the fluff and get to the point rather quickly. Following a brief introduction, share the information or ask the question you have, and offer details immediately afterwards. Establishing your point in the beginning gives the reader a clear idea of what the message will entail and motivates them to read further. In other words, the reader wants to immediately know what is being asked of him or her. This is called front-loading. No one wants to waste time reading paragraph after paragraph only to find at the end a question that could have been answered in one or two sentences. If you don’t front-load your point, the reader may feel overwhelmed, skim through the message and miss important details. So, share the news or ask the question first, and then supply just enough details to help the reader give an informed response.

Clarity: Minimize ambiguity

Within the body of your email, be as succinct as possible. Write in an active voice while avoiding jargon. Be explicit and unambiguous. Proofread and check for redundancy. Writing as clearly as possible makes your message easy to read and understand, thus easy to respond to. This is important when either asking a question or providing information such as instructions for completing a task. In any form of communication, your goal is to not only be understood, but to avoid being misunderstood as well.

Clarity also applies to visual presentation. Long paragraphs are an overwhelming, inefficient way to present important information to your reader. If your message runs long, give close attention to its format to make it easier on the reader’s eye. Use bold headers to break up text and direct the reader’s attention to key details. Apply bullets or numbered lists where needed. Also consider including separate attachments rather that typing all of the details in the email body.

Bonus tip: How to give bad news

Bad news messages follow a somewhat different format than those asking questions or providing positive information. For requests, you state your point early on. For bad news, it’s best to use a little buffer. Instead of sharing negative news immediately, sandwich it between positives. Establish goodwill in the beginning and reconnect with positive feelings in closing. And though the goal is to be tactful, still aim for concision. As an example, think of a job rejection letter:

“Thank you for applying for a position at Business XYZ. Although we were more than impressed with your experience, we have decided to pursue a candidate whose qualifications more closely match this position. We encourage you to apply for another position in the future. Again, thank you for your interest in employment at Business XYZ.”

In this example, the message begins with a positive approach, delivers the bad news and softens the blow at the end.

In conclusion

Remember to give people time to respond to your emails before sending that follow-up. A “reasonable” time for a response varies, but for non-urgent questions three to five business days seems courteous.

Lastly, be mindful of the CC and BCC email features. An abbreviation for carbon copy, CC means that all recipients in this field will receive a copy of the email. These addresses will be visible to every other recipient, posing a privacy risk. It’s also annoying to receive copies of emails that aren’t relevant to you and get stuck in conversations with people who stupidly click “reply all.” Being included on a mass email and having your address made available to people you don’t know is never fun.

BCC stands for blind carbon copy, also sending a copy of the email to a list of recipients. However, the “blind” feature hides recipients’ emails. Try to use BCC more. It gives recipients more privacy and helps everyone escape the “replay all” trap.

Have more tips? Chime in below!

Know your rights before taking an unpaid internship

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Internships provide valuable experience for students and young professionals seeking a greater understanding of an industry or occupation. They serve two purposes: helping students determine possible career options and teaching skills required for gainful employment.

Colleges and universities often require students to complete internships as part of their degree programs, which definitely benefits students in the long run. Employers are more likely to hire a candidate with a 3.2 GPA and relevant professional experience than a candidate who offers nothing other than a perfect GPA. You may find that a number of employers don’t care about GPAs as long as you have a degree and experience.

Many students seek internships simply to gain professional experience, not expecting compensation from an employer. However, some employers take advantage of interns and exploit them for free labor. While paid internships are more desirable than unpaid ones, they are more competitive. So, before taking on an unpaid internship, it is important for you to understand your rights so that you are not taking advantage of.

Unpaid interns in the nonprofit world

Nonprofit employers, according to the Fair Labor Standards Act (FLSA), must treat unpaid interns as volunteers who are donating their time to fulfill “public service, religious or humanitarian objectives.” The volunteer cannot be involved in any commercial activities, such as working in a gift shop, or else an employment relationship exists and the intern is entitled to compensation as outlined by the FLSA. States may define volunteerism somewhat differently than the U.S. Department of Labor define, so these laws are worth exploring a bit more.

A test for for-profit employers

“Volunteers” are not legal for for-profit private sector employers. In order for a for-profit private sector employer to have unpaid interns that are exempt from FLSA, they must meet all of the following six criteria:

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If all of these criteria are not met, an employment relationship exists and the intern must be paid at least minimum wage—plus overtime for work hours exceeding 40 in a week.

Internships are intended to be educational. The Department of Labor says that they should teach skills useful in “multiple employment settings.” If the work is unpaid, the intern cannot be involved in the business’ operations or perform duties from which the employer receives direct benefit. Unpaid interns cannot ever be used as substitutes for an employer hiring actual employees.

Rather than have the close supervision an employee would receive, unpaid interns are expected to observe, shadow and receive first-hand training. If the intern falls under the close supervision an employee would receive, an employment relationship exists and the employer may have to pay up.

Lastly, the internship cannot be used as a trial period for determining if an employer will hire the intern after the internship.

In recent years, there has been a surge of former interns suing companies for unpaid and underpaid work. In 2014, Condé Nast settled a $5.8 million class-action lawsuit covering nearly 7,500 interns, and subsequently terminated their internship program. Hollywood studios have also been brought into court, with most now agreeing to pay interns.

Unpaid internships are acceptable if they adhere to state and Department of Labor laws. Before starting your internship, be sure to have everything in writing, including your responsibilities and the employer’s expectations. Also, you should have in writing definitive start and end dates, which can help you avoid being taken advantage of.