What's your employee misclassification risk?
Use our free employee misclassification risk calculator to find out your risk level – and what you can do to fix it. No personal or financial information required, and this information won’t be shared
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Do you have contractors in the same countries where you have current business entities?
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Can the contractor choose their own work hours?
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Does the contractor have full autonomy over how they accomplish a task?
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Is the contractor engaged with your company for a temporary period?
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Does the contractor publicly acknowledge they are self-employed?
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Does the contractor supervise employees or other independent contractors?
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Does the contractor work with other businesses in addition to yours?
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How does the contractor claim expenses?
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How is the contractor paid?
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Does the contractor manage their own professional liability and other personal insurances?
More expert advice for managing contractors
Frequently Asked Questions
Misclassification occurs when a worker is mistakenly employed as an independent contractor, rather than a full-time employee. This means that workers and employers might not be paying all of the correct employment taxes due, and not receiving the correct employment rights and benefits according to local labour laws and regulations.
Contractor relationships are great for temporary roles when you need specialist skills or additional bandwidth. But contractors by definition shouldn’t be in charge of other employees or responsible for major initiatives if you intend to comply with classification regulations.
Contractors should also be able to work to their own schedule, with no set work hours, and the ability to take on other clients.
Some employers establish relationships with workers as ‘pseudo-employees'. The employer considers the worker to be a contractor, but under local legislation the worker would likely be deemed an employee.
These ‘pseudo-employees' are full-time, ongoing staff members where their work and working conditions are set by the company, but who are employed as a contractor. This relationship is an example of employee misclassification in action.
There can be serious consequences for misclassifying workers, either accidentally or on purpose.
The risks can include heavy penalties and fines, plus back taxes. You may also be responsible for compensating workers deemed misclassified by paying them for lost wages and any benefits they missed out on.
Misclassification can also create opportunities for legal issues to arise, from workers, unions, or other groups harmed by incorrect designations.
In the United States, the IRS says that “anyone who performs services for you is your employee if you can control what will be done and how it will be done.
This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.”
But the rules vary across different countries, and they are always changing.
However, there are a number of indicators that can be used to evaluate your independent contractor misclassification risk.
In the UK, Uber was forced to reclassify its drivers from contractors to another classification, ‘worker’. This highly-publicised case took five years to go through the legal process.
After a 10 year court case, Swift Transportation, a US-based trucking company, paid out over $100 million in damages to 20,000 workers who were misclassified.
Various other cases have been raised around the world in recent years. These types of misclassification cases can create negative perception issues: workers may quit or leave, potential employees may view your company unfavourably, and your customers may rethink their relationships.
While you may not be affected by contractor misclassification rules today, it’s still important to know the risk and act proactively to ensure your business is in good legal standing in every country you have workers around the world.
Businesses can prevent employee misclassification by using tools like Remote Contractor Management, which helps businesses hire, pay, and manage contractors efficiently.
The platform helps employers remain compliant with regional regulations through localised contracts, offers enhanced security with indemnity coverage, and keeps companies informed about labour law changes globally. The platform includes built-in misclassification and tax tools to protect businesses from compliance risks.
Remote helps protect against misclassification risks by offering services that ensure compliance with local labour laws and regulations. They provide tools and resources to correctly classify workers as either employees or contractors based on the legal requirements in their respective countries.
Remote also manages payroll, benefits, taxes, and compliance documentation, reducing the administrative burden on companies and minimising the risk of costly legal mistakes. By handling these aspects, Remote assists companies in maintaining proper classification and adhering to employment laws, thereby safeguarding against potential misclassification issues.
Remote’s Contractor Management Plus service offers extra protection against misclassification, including indemnity coverage of up to $1 million.
Disclaimer:
The content on this page is not intended to serve as legal or professional advice, and it should not be construed as such. We recommend seeking legal or professional advice before making any business decisions or relying on the information presented here. We reserve the right to modify, update, or discontinue the information on this page without prior notice. It is your responsibility to check for updates and changes to ensure you have the most current and accurate information.