There are a variety of reasons that an employer might want to classify a worker as an independent contractor (IC). The most compelling are usually the tax savings and the administrative time savings of not having to put that individual on payroll. Often employers believe that if they hire a temporary employee, this option is available to them since it seems to make sense that you shouldn’t have to jump through as many hoops when only employing someone for a few days or even a few months. Other employers believe that a worker's consent to being classified as an IC is all that is necessary.
Unfortunately, no matter how good the reason or how short of a time the worker works for you, if they don’t pass the tests established by the Department of Labor (DOL) and IRS, they must be classified as an employee. Failure to do so could result in significant penalties due to both wage and hour and tax withholding violations.
Thankfully, the DOL and IRS tests are quite similar, and a worker who looks like an IC under one test will likely look the same when the other test is applied. Here we have provided the DOL’s test.
On June 7, 2017, the U.S. Department of Labor (DOL) withdrew a 2015 administrative interpretation on classifying workers as employees or independent contractors. The withdrawal became effective immediately.
Despite the withdrawal of this guidance, employers are still required to properly classify their workers. The DOL stated that it “will continue to fully and fairly enforce all laws within its jurisdiction, including the Fair Labor Standards Act.”