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Employee or independent contractor? The cost of mislabeling

Employee or independent contractor? The cost of mislabeling 800 800 Gordon Media Company

While most workers find job stability and set employee benefits ideal, 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 short-term help and outside expertise at a fraction of the cost of hiring an employee. However, some companies 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 the worker’s’ schedule, or where or how the contractor completes the job. The higher the amount of power the company exercises over an independent contractor, the more likely this worker would legally be considered an employee. In such a case, the company is responsible for withholding and paying applicable taxes for the worker. Some companies use independent contractors to get around paying employment taxes, with the full burden falling on the worker.

The pros and cons of being an independent contractor

There are important differences between employees and independent contractors. In short, employees typically have predetermined schedules, paydays, and at least some benefits. Moreover, in addition to the employer sharing the burden of employees’ Social Security and Medicare taxes, it takes care of employees’ income tax withholdings. Drawbacks to being an employee may include an inflexible schedule, having to commute to an office and supervisors dictating your daily work.

Independent contractors set their schedules, but with additional flexibility comes more risk and responsibility. Although able to self-govern work, this may coincide with 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, the responsibility of withholding income tax and the costs of health insurance. These additional responsibilities may be justifiable costs for freedoms like working with multiple clients at once, flexible hours and being able to work remotely.

How companies mislabel employees and independent contractors

Many companies hire independent contractors and impose limits on their independence while avoiding payroll taxes. They dictate independent contractors’ schedules, supervise their work and require them to work inside the company’s office – basically treating the worker as an employee. This practice is not legal, according to the IRS. 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 practice is a company, rather than hiring a worker, using independent contractor agreements over a “probationary period.” Again, 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 a worker as an employee while also avoiding payroll taxes, even if it’s only temporary. It does not work both ways.

Ride-share companies Uber and Lyft offer excellent examples of how independent contracting works. While these companies set guidelines and safety standards for drivers and also disburse their customers’ payments, drivers are on their own schedules and do not report to anyone. Drivers determine when and where they will provide their services. Also, since drivers are not employees, taxes are not withheld, and drivers are responsible for paying all applicable taxes on their income.

Criteria for determining a worker’s appropriate classification

Hiring an independent contractor should be beneficial and fair to all parties, and workers and companies accomplish this by following all laws. “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:

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

The IRS recommends that employers consider all factors in determining the correct classification. They also provide a service to determine a worker’s status if it remains unclear.

The cost of mislabeling a worker

If the IRS or U.S. Department of Labor determines that an employer misclassifies an employee as an independent contractor, a company may face several penalties by either entity, including being required to pay fines, back taxes and interest on wages. Also, misclassified workers may be able to claim employee benefits retroactively. (Some businesses qualify for relief from federal employment tax with reasonable basis defined under the IRS’ Section 530.) Many class action lawsuits have materialized due to the mislabeling of independent contractors, resulting in multimillion-dollar settlements from companies like DoorDash and FedEx.

Remedies for mislabeled workers

If you signed an independent contractor agreement but are treated as an employee, there are solutions. First, you might 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 have paid. Note that 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.

To be clear: correctly classifying workers is the employer’s legal responsibility. In many cases, mislabeling is an honest mistake. In order to remedy mislabeling a worker before legal issues arise, employers may participate in the Voluntary Classification Settlement Program, allowing reclassification of 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 a costly legal mistake, whether committed knowingly or unknowingly. As an independent contractor, the worker must fight to protect his or her independence, and thus the ability to thrive as self-employed.

Many businesses seek to protect their interests first, so know your rights and advocate for yourself. For more information on the rights of independent contractors and employees, visit irs.gov.

The information presented in this article is for general guidance on matters of interest. The application and impact of laws can vary widely based on the specific facts involved.This article is not to be considered legal advice and should not be used as a substitute for consulting an attorney.

Successful emails graphic

The keys to successful and efficient business emails

The keys to successful and efficient business emails 800 800 Gordon Media Company

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 Secretary Hillary Clinton.

For email to be efficient, there are essential rules of etiquette to follow. The three keys to 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 exactly 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 whom 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 afterward. Establishing your position, 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 know what is being asked of him or her immediately.

This approach 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 information to help the reader give an educated 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 understand and more worthy of a response. Clarity is essential when either asking a question or providing information such as instructions for completing a task. In any form of communication, your goal is not only to 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 critical details. Apply bullets or numbered lists where needed. Also, consider including separate attachments rather than typing all of the features 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 the bad news, it’s best to use a little buffer. Instead of sharing negative information immediately, sandwich it between positives. Establish goodwill in the beginning and reconnect with positive feelings in closing. Moreover, though the goal is to be tactful, remain concise. 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 response varies, but for non-urgent questions, three to five business days seem 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 “reply all” trap.

Know the law before taking (or offering) unpaid internships

Know the law before taking (or offering) unpaid internships 800 800 Gordon Media Company

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 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 many employers don’t care about GPAs as long as you have a degree and experience.

Many students seek internships 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 essential 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, 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. 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 the actual operation of the facilities of the employer, is similar to the training 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 the 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 be impeded;
  5. The intern is not necessarily entitled to a job after 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 a direct benefit. Companies may not use unpaid interns as substitutes for 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 control an employee receives, an employment relationship exists, and the employer may have to pay up.

Lastly, an employer cannot use internships as trial periods for determining whether or not to hire the worker as an employee.

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 suit covering nearly 7,500 interns and subsequently terminated their internship program. Hollywood studios were also sued, 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 falling victim to bad internship practices.

This is article is not to be considered legal advice, but educational information for those with interest. Consult an attorney for legal advice.