Three Tests to Determine Worker Classification
Not sure if you should classify a worker as an employee or independent contractor? Follow these three interactive tests for guidance.
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In this guide:
Unique interactive test format
The IRS (Internal Revenue Service) 20 Factor Test
The IRS 3 Factor Test
The Department of Labor’s ABC Test
When to use IRS Form SS-8
Penalties for misclassification
Avoid misclassification and hire with confidence
Am I supposed to cover my worker’s social security and medicare taxes? What level of behavioral control can I have if I work with independent contractors? Should my workers have an employee status?
These questions probably sound familiar.
Worker misclassification is a common mistake made by employers. In the US, up to 30% of employers have misclassified some of their workers and given them the independent contractor status when in reality they had an employment relationship.
The line between contractors and employees is sometimes blurry, but you can avoid potential financial and legal penalties by using these three worker classification tests. Answer the questions to determine the degree of control you have over your worker, whether it’s behavioral or financial control.
What is worker misclassification?
Worker misclassification is when you categorize a worker as an independent contractor even though they fit the criteria of an employee. This act leaves the worker without statutory employee benefits and other rights the law guarantees them.
Governments consider wrong contractor classification a serious issue, as it wants employees to have the protections they deserve. At the same time, employers misclassifying workers can cause a significant loss of tax revenue.
Access your free guide to determine worker classification and reduce your misclassification risk.
These tests follow US guidelines. If you’re hiring outside the US, check your worker’s local laws regarding employment classification.