There seems to be a lot of confusion regarding the classification of workers. The employer and worker believe that whether a worker is an employee or independent contractor is something that can be agreed to by the parties. Many times, the employer believes that the status of the worker depends on whether the worker is working part or full time or is being paid on an hourly basis or a salary.

The worker believes it is in his/her best interest to be treated as an independent contractor since the employer will not take out any taxes and the worker will have more money on payday. The employer knows that by classifying the worker as an independent contractor, it derives many benefits. If the worker is an independent contractor, the employer will not be required to: (1) withhold taxes from the worker, (2) pay 50% of social security/medicare taxes on behalf of the worker, (3) pay unemployment taxes for the worker, (4) pay workmen’s compensation insurance covering the worker, and (5) provide any benefits to the worker.

The fact is that whether a worker is an employee or an independent contractor is based on the law. A worker’s classification is governed by three agencies: the Internal Revenue Service, the Department of Labor and the Florida Department of Revenue. Each agency has specific reasons for assuring that workers are properly classified.

• The Internal Revenue Service wants to make sure that employment (social security/medicare) taxes are paid and income taxes properly withheld.
• The Florida Department of Revenue wants to make sure that unemployment taxes are paid.
• The Department of Labor wants to make sure that a worker is receiving minimum wage, overtime pay when applicable and other protections.

Although each agency may have its own set of factors that they look at, all base the determination of a worker’s classification on common law. As a general rule, an individual is an independent contractor if the employer has the right to control or direct only the result of the work and not what will be done and how it will be done. Under common law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action

• For the IRS the determination of control depends on the facts of each case. Facts that provide evidence of the degree of control and independence fall into three categories:

• • Behavioral: Does the company control or have the right to control what the worker does and how the worker does the job?
  • Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
  • Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
  • For more information go to: https://www.irs.gov/pub/irs-pdf/p1779.pdf

• The Florida Department of Revenue looks to Chapter 443 of the Florida Statutes and holds that employment includes services performed by individuals under the usual common law rules applicable in determining an employer-employee relationship.
  • The Department of Revenue looks primarily at ten factors to make the determination of a worker’s status.
  • The Department of Revenue states that their common law factors are similar to, but independent of, the factors used by the IRS to determine if a worker is an independent contractor or employee.
  • For more information and for the ten factors go to: https://floridarevenue.com/taxes/taxesfees/Pages/rt_employee.aspx
• The Department of Labor has rules which provide guidance in analyzing whether a worker is an employee or independent contractor.
  • The DOL revised these rules on January 10, 2024 and the new rules will take effect on March 11, 2024.
  • The new rules rescind the 2021 rules and are more consistent with longstanding judicial precedent which look at the totality of the circumstances and not at assigning a predetermined weight to specific factors.
  • The new rules look at six factors instead of five and provide additional analysis of the control factor.
  • For more information and for the six factors go to: https://www.dol.gov/agencies/whd/government-contracts/small-entity-compliance-guide

There are serious consequence for employers who misclassify workers. These include:

• The employer may be liable under the Fair Labor Standards Act for failure to pay minimum wage and overtime. Penalties can be civil and/or criminal.
• The IRS can pursue the employer for unpaid social security and medicare taxes and failure to withhold taxes from the worker.
• The employer may be liable for failure to comply with verification of the worker’s right to work (Form I-9). This is investigated by Homeland Security, the Department of Labor and Immigration and Customs Enforcement. Penalties can be civil and/or criminal.
• The employer may be liable for unemployment taxes to the Florida Department of Revenue.
• The employer may be liable for penalties for failure to pay workmen’s compensation insurance covering the worker.
• The employer may be liable to the misclassified worker for employee benefits such as pension, vacation, and health insurance not received due to misclassification.
• The employer may be liable to the misclassified worker for failure to provide required protections under state and federal anti-discrimination laws.
• The employer may be liable to the misclassified worker for failure to provide leave under applicable laws like the federal Family and Medical Leave Act (FMLA) and the Uniformed Services Employment and Reemployment Rights Act (USERRA).
• Employees are entitled to notice under many different laws. The employer may be found to be noncompliant with these laws due to failure to provide the required notices to the misclassified worker.