Are Your Remote Workers “Employees” or “Contractors”?
The employee VS contractor issue has never been easy. However, with so many employees transitioning from full-time office workers to full-time or part-time remote workers, the problems have become even murkier. While some businesses have resumed their post-pandemic norms, others have continued their operations with employees still functioning remotely.
Considering this ongoing trend, it’s a good idea to reassess your workers’ employee status. Based on Internal Revenue Service definitions, some of your “employees” may be contractors. If that’s the case, it changes your duty to comply with specific federal guidelines. It can also save employment costs.
If you find that your relationship with a contractor has shifted to employer/employee, you must reassess your relationship and comply with federal employment guidelines and protocols.
Lots of Remote Workers Have Not Yet Returned to the Workplace
The global analytics firm, Gallup, has tracked monthly remote-worker trends since April 2020. Their May 2021 report explains that many workers never returned to business as usual. The poll defines remote workers as employees who work at home at least 10% of the time. Then the statistics varied depending on the worker’s occupation.
- Seventy-two percent of white-collar workers were still working remotely.
- Fourteen percent of blue-Collar Workers were working remotely.
- In certain occupations, 60% to 80% of the employees are working remotely.
- Those working in sales, healthcare, labor, service, construction, maintenance, and similar occupations currently have remote rates ranging from 8% to 36%.
What Makes an Employee an Employee?
Federal agencies such as the IRS and the Department of Labor provide guidelines to help you clarify whether your worker is an employee or a contractor. For example, the IRS Employee VS Contractor factsheet looks at three essential relationship areas to confirm that an employee is, indeed, an employee and not a contractor.
- Behavioral Control: Do you instruct, evaluate, and train the worker. Do you establish and track their work hours?
- Financial Control: Do you control worker’s business expenses, profits and losses, availability to work for others, and payment methods?
- Working Relationship: Do you treat your worker like your other employees: benefits, insurance, vacation pay, a permanent job, etc.
If the above circumstances describe your worker/employer relationships, the IRS and the DOL would likely determine that your remote workers are still your employees. However, if you define your relationship via contract and you no longer treat your worker as an employee, he may no longer be an employee.
Remote Workers: Why it’s Important to Get it Right
The IRS and DOL regularly discover businesses that misclassify employees as contractors. While misclassification is sometimes unintentional, it’s often a strategy to save money.
With so many people working at home, either full-time or part-time, some of your employees may have transitioned to independent contractor status. If there’s a legitimate change in your relationship, it can reduce your employment obligations and costs.
- Based on your written or oral agreement, you pay a contractor a pre-determined amount for their services. In addition, you pay an employee at least the federal minimum wage.
- Then, you must also pay an employee an overtime rate if they qualify. You pay a contractor the agreed contract amount no matter how many hours they work.
- Also, you don’t have to commit to paying a contractor’s vacation benefits, medical insurance, sick pay, or any of the perks you promise your employees.
- You have no obligation to withhold and pay IRS deductions, state tax deductions, or FICA taxes.
Contact Health Consultants Group
To learn more about employee vs. contractor classification and other essential HR issues, visit our contact page or give us a call at (800) 367-2482.