Mondaq (02/17/12) Bryan Lazarski

A common issue facing many employers is the misclassification of employees as independent contractors. A dangerous but pervasive myth is that a company can simply agree with a worker that he or she shall be treated as an independent contractor. The truth is, whether a worker qualifies as an independent contractor or an employee is determined by the realities of the relationship between the parties, which cannot be overcome by agreement or contract.

Federal and state enforcement agencies apply a multifactor analysis to analyze classifications. Ultimately, though, the main distinction boils down to whether the employer has the right to control only the result of the work or if it also controls the manner and means of how the work will be done. If it is the latter, the worker is probably an employee.

There are several things to consider when reclassifying a worker to employee status, including the possibility of owing back taxes, having liability for unpaid overtime, and being subject to other fines and penalties. If done correctly, though, a voluntary reclassification can significantly reduce or eliminate a firm’s risk of a much costlier lawsuit.