Independent Contractor Compliance

This is one of the most common questions, since worker misclassification can be costly. The difference generally depends on factors such as who controls the worker’s schedule, who supplies the tools and equipment, and how much authority the company has over the way the work is completed.

Carefully reviewing these factors is critical to preventing misclassification and avoiding the risks that come with it.

Classifying someone as an independent contractor when they should legally be treated as an employee can create serious financial and legal consequences. Your business may be required to pay back Social Security, Medicare, and income taxes, along with interest and penalties, for the full period of misclassification.
In addition, you could face further fines from federal and state agencies, responsibility for unpaid unemployment insurance, and legal claims from misclassified workers seeking unpaid wages, overtime, benefits, and other protections they would have been entitled to as employees.
Working with an Employer of Record (EOR) or a Compliance Outsourcing Provider (COP) can help minimize these risks. Well-structured Statement of Work (SOW) agreements can also provide added protection by clearly defining deliverables, confirming IC status, and outlining payment terms.

In North America, the IRS uses the Common Law Test to decide whether a worker should be classified as an employee (subject to the company’s control) or an independent contractor (working with greater independence).

• Independent Contractor: If the business exercises limited control over how and when the work is performed, the worker handles their own finances, and the arrangement is project-based or short term, the worker is more likely to qualify as an IC.
• Employee: If the company controls not just the end result but also the methods used to complete the work, provides tools, sets work hours, and maintains an ongoing relationship, the worker is more likely to be considered an employee.

The IRS generally reviews three primary categories:

• Behavioral Control:Who determines how the work is completed, which tools or methods are used, and when the tasks are performed?
• Financial Control: Does the worker establish their own rates, cover their own business expenses, and have the opportunity for profit or loss, or do they simply receive regular wages and reimbursements?
• Type of Relationship: Is the arrangement ongoing or long term? Can the worker take on multiple clients simultaneously? Are benefits like health insurance or paid leave provided?

If your situation is unclear or involves added complexity, seeking professional guidance is often the best way to ensure workers are classified correctly.

Our pricing is flexible and depends on the number of countries and workers that require support. Rather than using a one-size-fits-all pricing model, we provide custom quotes based on your operational scope and specific needs. Reach out to discuss your requirements, and we’ll prepare a proposal tailored to your business.