Buechner Haffer Meyers & Koenig Co., LPA
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Misclassifying employment status and consequences

Business owners in Ohio are able to classify their workers as either employees or independent contractors. There are distinctions between those that determine which classification the worker falls in, and an employer must be careful to categorize the worker correctly. If they do not, whether the employer does it knowingly or unintentionally, there are multiple consequences the owner faces for improper classification.

The IRS outlines what determines the employment status of a worker, and it mainly comes down to the degree of independence and control exercised by the employer. Three categories should be primarily evaluated. These include:

  • Financial
  • Behavioral
  • Type of Relationship

    An independent contractor works, for the most part, independently of employer financial and behavior control. In terms of financial, an independent contractor incurs business expenses and controls how funds associated with completing work related tasks are spent. Contractors also get paid in full, without tax deductions, and are subject to self-employment taxes. With an employee, the employer pays for overhead and supplies and also takes out payroll taxes, such as Social Security and Medicare, from their paycheck. In terms of the behavioral category, an independent contractor decides their hours, where they complete work tasks, and how the job gets done, while an employee must follow the time, place, and manner rules of their employer. With an employee, the relationship may be defined by a policy and procedure statements, benefits, and a degree of job stability, while an independent contractor does not get employer provided benefits and is typically on the job for a limited time that is defined by a written contract.

    In the State of Ohio, there are multiple penalties for those who misclassify someone truly classified as an employee as an independent contractor. When using a worker as an employee, regardless of what the employer may call that person, businesses are required to withhold taxes; possibly provide certain benefits or protections; make deductions for Medicare, Social Security and unemployment; and pay minimum and overtime wages. If an employer classifies a worker as an independent contractor to simply avoid these requirements, yet treat them like an employee, that business may be liable for paying fines, back taxes, and back wages. The State of Ohio has focused significant resources to enforcement of these issues in recent years and 2018 appears to see continued effort in this area of the law.

    For further analysis of the right way to implement your employee strategies in Ohio, contact Brian R. Redden or another of our BHMK lawyers to get direction and advice as to how to properly handle this complicated and prioritized issue.

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