Independent Contractors in Construction Series - Part 3

The Risks of Relying on Independent Contractors

The role of independent contractors has grown substantially over the last few years. It has become common practice for contractors to rely on this type of worker for any project. There are many benefits companies receive for relying on independent contractors (ICs). One major benefit is the immediate and obvious impact on overhead. There are simply less costs associated with ICs than employees. For instance, the fees are set at the time of contract, there are no payroll costs associated with ICs, no paid benefits, nor any staffing concerns; all of that is their responsibility. All of theses benefits do not come without risks. Because of the shear amount of benefits associated with ICs, the Department of Labor, the IRS, and state and local agencies construe independent contractor status narrowly. This article in the series will share with you the major risk of misclassification and its impact on your business should it arise.

Simply put, misclassification of employees happens when ICs are not actually working independently. Penalties can include:

• Back pay, including unpaid minimum wage and overtime compensation.

• The value of employee benefits.

• Unpaid taxes and contributions.

• Penalties and interest.

• The fines can be up to $5,000 per misclassified employee.

In Colorado, employers misclassifying workers as independent contractors may also face legal liability. A misclassified employee may have a private wage and hour claim against the employer, which can result in the employer paying:

• Compensatory damages.

• Penalties.

• Fines.

• Costs.

• Attorneys' fees.

The Colorado Department of Labor and Employment, Division of Labor (Division) also aggressively investigates potential violations of wage and hour laws. Once the Division receives a complaint, it has 30 days to decide whether to investigate. The investigation may include a review of all the employer's payroll practices, including record keeping and classification of all its workers.

In summary, the benefits of relying on independent contractors are great, but so are the costs resulting from the misclassification of workers. The surest way to avoid a misclassification issue, is to speak with an attorney at Galvanize Law Group, LLC.  An experienced attorney can work with you and advise you on specific steps you can take to avoid any potential issues.