Not everyone who performs work for your company is an employee. You may work with independent contractors or undertake specific, short-term joint ventures with outsiders. If you are a retail establishment, you may hire temporary workers seasonally. You may also hire from various temporary agencies to cover fluctuations in the workload.
When evaluating how to pay these workers, you should consult a skilled attorney on what status the Department of Labor would assign to them. Paying them as independent contractors when they function as employees is a misstep that can cost the employee in accrued Social Security benefits and cost you in fines. Call a Virginia employee misclassification lawyer at Sparks Law to discuss your current hiring process and ensure workers are correctly categorized.
Employers are sometimes tempted to classify workers as independent contractors, so they do not have to contribute to unemployment benefits or social security. Independent contractors are issued a Form 1099 at year’s end. This only lists the gross amount paid because these workers pay their own taxes, resulting in far less paperwork for the boss.
Conversely, employees receive W-2s that itemize taxes and other deductions withheld or matched by the employer. Employees perform various tasks according to their job description and are paid the same wage on a set schedule. They accrue vacation and sick time, as well as other benefits. Independent contractors usually negotiate a contract and are paid a certain amount to complete a project. They are not subject to periodic reviews of their job performance, nor will they spend their working life in one place. A knowledgeable lawyer at our Virginia office can further explain these distinctions when classifying employees and independent contractors.
When an employee is injured on the job, Virginia’s workers’ compensation system kicks in to pay for medical treatment and lost wages. This benefit is generally not available to independent contractors. Independent contractors do not receive pensions and are not subject to Virginia’s wage and hour laws.
Effective in 2021, the Virginia General Assembly enacted legislation concerning misclassification, including penalties for employers who do. The Virginia Department of Taxation currently decides whether a worker is an employee or an independent contractor using the Internal Revenue Service (IRS) guidelines, most notably based on how much control a business has over a worker. The burden of proof that a worker is an independent contractor now falls on the business because Virginia will assume any worker performing a service for pay is an employee.
Virginia legislators have talked about additional penalties for businesses that misclassify employees, as these actions take tax revenues away from the state and federal government. A local attorney can explain these laws and help employers avoid employee misclassification.
The Fair Labor Standards Act (FLSA), relying on 29 CFR Parts 780, 788, and 795, poses two questions that help determine if a worker is an employee or independent contractor: how much control does the company have over the worker, and will the worker profit because of the worker’s initiative?
The more control over a worker’s performance, the more likely the worker is an employee. Workers who set their own schedules and figure out how to complete a project are likely independent contractors.
Independent contractors are their own bosses, incurring risks associated with taking on new projects and using their capital to grow their business. Employees work for a salary or hourly wage while the company incurs the risk of the business’s success. Independent contractors usually are bound by a contract that specifies they are not employees. However, these laws can be nuanced. Business owners who want to ensure they are correctly classifying their workers should consult a Virginia lawyer at Sparks Law for guidance.
As an employer, you have a choice to hire employees and independent contractors depending on projects and your business needs. You need to know the difference to avoid being fined for circumventing state and federal tax rules, workers’ compensation, and social security contributions.
Our knowledgeable Virginia employee misclassification lawyers can assess the status of your labor and ensure going forward that you are abiding by all the rules. Call Sparks Law today for a consultation.
