Independent Contractors in Construction Series - Part 4
How to Avoid Misclassification
As the previous article showed you misclassifying your workers can be a costly mistake. So how do you protect your business, while still relying on independent contractors? Unfortunately, there is no catch all test to determine if you are at risk of misclassification. To make this more complicated, there are different test used under Federal law than Colorado State law. This article will attempt to simplify the tests by identifying similar factors to help you and your company avoid the penalties previously described.
The tests involve an analysis of the same or similar factors. These factors are used in a balancing test, meaning no one factor can determine the worker’s status. Using Colorado State law as an example, each factor is considered to figure out whether the individual is free from control and direction during their work. As well as, whether the individual is normally engaged in independent work outside of the relationship. This boils down to being sure to allow your independent contractors the ability to control their work, and not to include or require an exclusive work relationship. Crossing either of those lines can lead to misclassification and all the penalties that come with it.
Some factors that may cause a red flag for a misclassification are:
Establishing a quality standard outside of the plans;
Paying a salary rather than a fixed contract rate;
Terminating the contract outside of a breach;
Providing job specific training;
Providing tools and equipment;
Dictating the time of work (outside of normal project scheduling);
Paying individuals directly rather than their business; or
Combining business operations.
Like everything in the industry, the law surrounding the classification of workers is complex. One misstep could result in huge expenses for your company. Please contact one of the attorneys at Galvanize Law Group, LLC., and we will be happy to answer any questions or concerns about your current independent contractor relationships to help you protect your business.