Avoiding the Misclassification of Workers in the Small Business


The decision whether to staff with employees or independent contractors hinges on a number of practical issues. Owners are able to exercise more control over the actions and methods of employees than ICs. Employees also tend to be more committed to the store's image and business objectives than ICs. On the other hand, ICs can be brought in to help for short periods and then let go without hard feelings or legal issues, as long as both parties honor their end of the agreement. And ICs do not require the same care and feeding as employees, such as benefits and training. Scuba retailing, as an example, requires both types of worker to serve its customers. There are other businesses that share these characteristics.

But aside from these practical issues, there are other more important considerations with regard to employee vs. IC staffing, and big headaches can develop by blurring the distinction between these classifications. Problems can include a variety of unexpected liabilities from a number of sources related to taxes, insurance and lawsuits, even when the business owner believes he or she is doing everything right. Simply labeling your contractor instructors "ICs" and issuing 1099 forms are not enough to avoid the pitfalls of worker "misclassification."

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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