From the Hawaii Employment Law Blog, Roman Amaguin discusses the risks in Hawaii of misclassifying a worker as an independent contractor instead of an employee. He writes:
“Hawaii employers continue to take a risk when they classify someone performing services for them as an independent contractor instead of an employee. Because employers owe contractors far fewer obligations than employees, employers risk each of the following if a court determines that a misclassification occurred:
- Unpaid overtime
- Unpaid taxes
- Unemployment benefits
- A discrimination claim, or claims under other laws that protect employees but not contractors
In determining whether a worker is an employee or an independent contractor, the IRS compares the degree of control exerted by the company to the degree of independence retained by the individual. Generally, the IRS examines this relationship in three ways:
- Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
- Financial: Are the business aspects of the worker’s job controlled by the payer?
- 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?
If you are considering classifying someone performing services for you as an independent contractor, your answers to these three questions will determine whether that individual is a bona fide contractor, or instead, is an employee.
When in doubt, err on the side of caution. The government applies these tests aggressively to find employee status whenever it can. You should too, and the risks are too high to make a mistake…”
Read the full story at Independent Contractor vs. Employee Issues Continue to Vex Hawaii Employers