HR: Distinguish Employees from Contractors to Avoid U.S. Misclassification Risks
HR practitioners are advised to carefully distinguish between employees and independent contractors to avoid misclassification risks. This involves understanding local laws and guidelines, particularly in the U.S., where the IRS considers behavioral control, financial control, and the nature of the relationship.
Misclassification can result in substantial liabilities and penalties. To mitigate this, HR should regularly review and audit relationships, ensure proper contracts are in place, limit company control over work methods, and monitor changes over time. Factors such as contracts, benefits, and work integration help determine the relationship of the parties.
In the U.S., the IRS provides official guidelines defining independent contractor status. More financial independence of the worker, indicated by factors like contracts and benefits, points to independent contractor status. HR practitioners should stay current with evolving laws and guidance to build compliant independent contractor arrangements.
For HR practitioners developing labor relations with independent contractors, understanding and adhering to local laws and guidelines is crucial. This includes regular reviews, limiting company control, and staying updated with evolving laws to avoid misclassification risks and build compliant relationships.
