5 Tips for Avoiding Worker Misclassification
How can businesses avoid misclassifying employees as independent contractors?
Misclassifying workers is a huge risk for businesses. In 2021, Uber lost a tribunal case over misclassifying their drivers as self-employed workers. As a result, Uber was required to update all drivers’ contracts with their true employment status, and offer them employee benefits such as sick pay and holiday allowance.
This is an expensive outcome for Uber — and it could be for any business that misclassifies its employees as independent contractors. So how can you avoid worker misclassification?
What is worker misclassification?
Worker misclassification is when businesses incorrectly categorise their workers as independent contractors, rather than employees.
Of course, many people actually are independent contractors — and as more people take on side hustles and second jobs, it can be difficult to categorise workers correctly. But in order to comply with local employment laws, it’s essential to know how to correctly classify your staff.
5 tips for avoiding worker misclassification
1. Understand local employment law
Knowing which laws govern employee classification is essential for businesses that hire contract staff. In the UK, IR35 tax legislation is designed to prevent companies from avoiding tax by misclassifying workers. In the US, the Fair Labor Standards Act (FLSA) governs employee classification.
These laws put employee classification firmly in the hands of employers. Even if someone agrees that they’re an independent contractor, it doesn’t make it true in the eyes of the law.
2. Learn how to identify contractors
When you know which laws apply to your business, you need to learn how to identify contractors vs employees. This can be a grey area, so it’s important to know the right questions to ask. These include:
- Does the worker have complete control over where and when they work?
- Are you paying solely for their services, or do you also provide benefits like holiday pay and sick pay?
- Does the worker have other clients in the same field?
- Do they have their own website or marketing channels that are separate from your business?
- Do you supply them with equipment?
If a worker has their own business website, control over their working hours, and additional clients, they’re likely to be an independent contractor. However, if you are their only client, or you supply them with equipment and/or benefits, they could be classified as an employee of your business.
3. Train your hiring staff
It’s not enough for people at the top to know how to identify a private contractor. All your hiring staff should know what differentiates a contractor from an employee.
Offer training to ensure your staff members have up-to-date knowledge about worker classification, and update your processes so staff know what to do if they suspect a worker has been misclassified.
4. Get help from employment experts
Instead of learning all about worker classification from scratch, it may be easier and more cost-effective to get an expert opinion. Employment support services can help you ensure your workers are classified correctly, and make sure you have the due diligence in place to prove it.
Find out how Mauve helps businesses review and classify independent contractors, to make sure you’re compliant with local employment law.
5. Use an Employer of Record
An Employer of Record solution also helps ensure all your employment practices are compliant with classification laws. Not only that, it helps you with payroll, contracts, and HR compliance, giving you all the tools you need to implement a successful global workforce.
Learn about Mauve’s Employer of Record service, and how it can help you manage the entire employment process in a compliant, cost-effective way.
Looking for support in classifying your workers? Mauve Group’s range of services can help your business remain compliant while managing a global workforce. Contact our team of experts here for further assistance.