Avoiding Independent Contractor Misclassification in the IT Sector

IT professionals

From the DCR Workforce Blog, this post recognizes the challenges of classifying IT professionals as independent contractors.  While some IT professionals may have an entrepreneurial spirit, if they choose to work for a company that has an IT staff, it can be hard to explain to an auditor why the worker was classified as an independent contractor instead of an employee.  This blog post discusses some of the challenges of classifying an IT professional as an independent contractor.  It states:

what makes the classification of IT professionals more complex?

The nature of the work. IT roles can range from data entry, to data center support, to the design and development of leading-edge software and hardware. When engaged to provide data center support, hotline tech support, or data entry, the client will most likely need to set firm hours and exert other controls over how the work is conducted. In this scenario, the individual would most likely be classified as an employee. On the other hand, if retained to design a new software product, the focus is on the deliverable – not how and when the work is conducted. In this case, the individual is acting as an independent contractor.

Where the work is conducted. A great deal of IT work is conducted through online platforms by individuals who are working remotely. The IT professional may be down the block, or on the other side of the world. Working from an offsite location does not automatically make the worker an individual contractor. A company can exert controls over the method of work even when the worker is not in the office. When creating such a relationship, it is also not safe to assume that the relationship will pass the vigilance of local tax authorities. Should misclassification occur with an overseas worker, the repercussions from having the local authorities applying local laws could up the ante on the penalties payable! Almost every country in the world has its own policy on who can be designated as an independent contractor. As most of these countries do not have the at-will employment policy that America employs, the costs of misclassification could be higher.

The impact of team work. Many IT professionals are engaged to provide skills missing from an internal team. The individual will work as a member of a team, implementing new applications, developing new software, or building a new hardware product. It is common practice in most companies to offer special rewards and recognition to teams that complete such assignments on time and budget. In addition, the independent contractors may be required to work specific hours in order to meet a deadline. When companies manage project teams, or offer team incentives that also reward the independent contractors working with the team, they run the risk of misclassification….

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