The Tricky Business of Converting Employees to Independent Contractors

The Tricky Business of Converting Employees to Independent Contractors

Workers Compensation Lawyer

There are many reasons why you might want to convert existing employees into independent contractors. Maybe your business has experienced financial trouble, and you think that by changing your employees’ relationship with the company by making them independent contractors, you may avoid lay-offs. Though your heart is in the right place, the situation can be much more complicated than you anticipate.

It is not enough simply to reclassify your workers as independent contractors, even if they are amenable to the change. What you call your workers doesn’t matter as much as what they actually do for you and under what circumstances. Employees have rights that independent contractors don’t, and if it looks as though you reclassified your workers so you could deny them their rights as employees, you can get into big trouble. It may be possible to reclassify workers as employees, but it can be difficult to demonstrate that the change is legitimate and was made in good faith.

Different Standards

The Department of Labor and the Internal Revenue Service are both concerned with the proper classification of workers. They have different standards to determine who are working for themselves as independent contractors and who are employees. Because each company can impose consequences on you for misclassifying employees, you must be able to meet both sets of requirements when reclassifying employees as independent contractors.

Control Levels

The difference between an employee and an independent contractor is the level of control that you, the employer, have over the process. When you work with an independent contractor, you have the authority to direct the end result, but the contractor or worker has control over the methods and means of accomplishing it. The more control you retain over the process, the less likely the IRS or Department of Labor will be to agree with your independent contractor designation.

For example, you might think that allowing your workers to work from home is enough to reclassify them as independent contractors. However, if you still designate the hours that they are expected to work and the type of equipment that they must use, the reclassification to independent contractor may not stand up to legal scrutiny, even if the employee is working at home, because you still control when and how they work.

It may be risky for you to attempt to reclassify employees as independent contractors. However, if you are convinced it is best for your business, a business lawyer, like from the Law Office of Daniel Wright, may be able to help you make the transition in a way that will stand up to government scrutiny. Contact a law office to arrange a consultation.

Greenberg Law Offices