The advent of new employment protection laws and the rise of the freelance economy/”gig” worker has given rise to a significant number of penalties being levied against employers who misclassify their employees.

Determining whether a worker is an employee or an independent contractor is a necessary part of the hiring process, but if done improperly it can lead to a lot of potentially expensive problems.

Here’s what you need to know:

What is Worker Misclassification?

Worker misclassification is simply incorrectly identifying individual members of your workforce as either employees or independent contractors. While this can happen as a result of a mistake, the consequences can be real and very expensive, even if the action was not intentional. The first step to avoiding this mistake is to understand just exactly what makes each role unique, so this is what classifies a worker as an employee versus a contractor:

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What is an Employee?

An employee-employer relationship is much more defined in the boundaries of the

role. Traditionally, this is how most people have been employed. This means that the

employer dictates:

• Hourly or salaried rate of pay

• How and when work is performed

• Key performance indicators and quality standards

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What is a Contractor?

The rise of the digital and distributed economy has given a noticeable rise to the

number of contracts in the job market. A contractor has more flexibility in how they

choose to carry out their role to achieve a stated goal. They should control:

• Their rates of pay

• Where and how the job is done

• Increasing or decreasing the scope of work based on skill and ability to have significant impact on the bottom line

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