The digital age has transformed how you find workers. Nowadays, you can hire great talent from across the globe in just a few clicks. However, one hiring mistake can ruin your business instantly.
Many West Virginian entrepreneurs don’t realize that misclassifying your workers can trigger risks and penalties that could cripple your business. Hence, before you onboard your next rockstar staff, you need to know the difference between an employee and an independent contractor.
Recognizing your employees
So, who counts as your employees? An employee is someone who works for your business under your direction and control. In practical terms, this means you decide when they work, where they work and how they do their work.
Your employees depend on your company as their primary source of income. Thus, they are considered as permanent members of your company. This level of relationship creates legal obligations for you wherein you must treat them in accordance with federal or state labor and employment laws.
Understanding independent contractors
On the other hand, independent contractors operate differently. They do not have the same relationship with you as a regular employee does. Instead, they are considered as a separate business entity providing services for your company. Simply put, you do not control when, where, or how they do their work.
3 tests to identify your staff
Learning how to identify your staff from contractors helps you make informed decisions as you grow your team. To help you make this distinction clearer, here are three tests you can use to determine worker classification:
- Behavioral test: If you are the one who decides when, where and how a staff works, then they are your employee. If a staff works on their own terms and just submits deliverables, then they are contractors.
- Financial test: You shoulder the cost of paying your employees, the tools they use, and other overhead fees. Meanwhile, you only pay a contractor for the services they rendered.
- Relationship test: If you hire someone with the expectation that they will stay and grow with your business, then that is employment. However, if you hire someone only to complete a specific task or projects with fixed due dates, then that is contractorship.
Using these three tests are the key to figuring out which kind of staff you have. But since these tests present a lot of gray areas, it is always best to seek legal counsel to protect your interests.
The importance of having legal advice
As a business owner, you might be tempted to handle hiring decisions yourself. However, misclassifying your employees could result in penalties that would devastate your cash flow.
Consider reaching out to legal professionals who understand these business challenges. They can help review your team structure and advise you on how you can best move forward with your hiring processes. Remember, the future of your company depends on the choices you make today.