Hiring Freelancers: Employment Practices Liability?

midwestern logoAs the shift from a traditional 9-5 to a gig economy continues, it’s important to recognize how it impacts both employers and workers alike. With this change comes more Employment Practices Liability for the employer in terms of classifying the worker and paying them properly. As such, heed the following advice for ensuring compliance with hiring freelancers versus full-time employees.

Misclassifying employees affects all parties. Without being classified as a full-time employee, workers miss out on benefits including 401 k, health insurance, and vacation time while businesses can face penalties, fines, and even jail time for failing to classify their workers correctly. In fact, According to a report from SIA, a global staffing and workforce solutions advisor, more than one-third of midsize businesses have been fined or penalized for not complying with laws about how they manage their workforces.

However, classifying workers correctly continues to be a struggle. “Where worker classification is concerned, no hard-and-fast criteria exists, despite the fact that the Department of Labor, National Labor Relations Board, IRS and a host of state labor-related agencies have their various interpretations,” said Jeff Wald, Work Market co-founder and president, in a telephone interview with Small Business Trends.

Therefore, it’s recommended that employers that hire freelancers take the compliance test to ensure they won’t get fined for improper employment practices. IRS 20-Factor can help to determine how much financial and behavioral control the employer holds over the worker, determining if they are actually an employee or a freelancer. Further, the Economic Reality Test will help to identify how reliant the worker is on a paycheck from the employer which will also indicate whether or not they are considered an independent contractor or not.

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