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Why It’s Important for Your Business to Understand the Difference Between Employees and Independent Contractors

If your company is planning to hire employees, it is a good idea to talk with Irvine business attorneys in order to make sure you don’t make errors in the hiring process that could affect your organization. One big issue that your company needs to address is making certain that you understand the difference between employees and independent contractors. If you make mistakes when it comes to distinguishing between the two and you incorrectly classify an employee, you could find yourself facing serious legal problems. Irvine business attorneys

Brown & Charbonneau, LLP can provide personalized one-on-one advice connected with understanding the difference between an independent contractor and an employee. We can also help you with the other key legal issues that can arise when you hire a worker in order to ensure that you protect your organization. Give us a call today to find out more.

Why Your Business Needs to Understand the Difference Between an Independent Contractor and an Employee

It is important for your business to know the key differences between an independent contractor and an employee for a number of reasons. Some of the big reasons why you need to know this distinction include:

  • Avoiding IRS penalties
  • Avoiding an investigation by the Department of Labor
  • Avoiding a lawsuit by an employee for back wages
  • Avoiding possible criminal penalties and other sanctions

Employees have many more rights and many more protections in the workplace than independent contractors do. For example, if you employ an employee, then you typically need to have workers’ compensation insurance and unemployment insurance coverage. You are responsible for paying the worker at least minimum wage and for complying with other laws related to wages, such as paying overtime and paying a regular paycheck.

And, as an employer with an employee, you also have to handle a host of tax issues. For example, you need to have an employee fill out a form to specify their withholding and you need to withhold income taxes and submit them to the IRS on a periodic basis because the U.S. tax system is a pay-as-you go system. Employers are also responsible for paying a portion of a workers’ Social Security and Medicare taxes, so you will incur extra costs from hiring an employee compared with an independent contractor. And, you need to generate the right tax forms each year to send to the IRS and the employee reporting his or her wages.

If you incorrectly label an employee as an independent contractor, you could end up owing back taxes and penalties. You could also be penalized for not completing the required tax forms declaring the workers’ wages to the IRS. It is possible that the worker could sue you for back wages, and the Department of Labor could also launch an investigation into your business practices.

Determining whether a worker is an employee or is an independent contractor can be more complicated than it seems, especially because you do not get to decide this based on your preferences. Even if you sign a contract with a worker that says he or she is an independent contractor, this does not mean he is an independent contractor unless he fulfills specific criteria. An attorney can help you to understand the distinction and the characteristics that make a worker an employee.

Getting Help From Irvine Business Attorneys

Irvine business attorneys at Brown & Charbonneau, LLP can provide you with personalized advice regarding how to make sure you have chosen the right classification for workers that you bring onto your organization. We can also help you to otherwise understand your obligations as an employer so you can reduce the risk that you’ll end up facing legal problems including a lawsuit, an IRS audit, or other regulatory action.

To find out more about how our firm can help you, give us a call at (866)237-8129 or contact us online.