Hiring independent contractors can be vital to a company’s productivity and bottom line. Contractors often play a critical role in building small businesses, especially startups with limited employees and monetary resources.
Large employers who hire independent contractors instead of employees could save 15% to 30% on payroll taxes and benefits. However, organizations that misclassify workers may have those savings depleted by fines, back taxes, benefits and other costs.
The ABCs of hiring independent contractors
In 2020, California implemented the ABC test to gauge a worker’s employment status. Under this system, an individual is an independent contractor if they meet all three of these requirements:
- The contractor’s work is not directed or controlled by the company
- The work they perform is outside of the employer’s usual business
- The contractor must have their own business focused on doing the work in question
It’s helpful to avoid situations like a “permalancer” relationship – contractors who work only for one company, which the contractor relies on to set their workload and hours. While such an arrangement might become comfortable and profitable for both parties, it may be in your best interest to maintain clear boundaries.
Compliance and risk tolerance
Clear policies that adhere to state guidelines can help businesses of all sizes prevent penalties for employee misclassification.
Will it take time to address your job descriptions and oversight of those who perform work for you? Certainly, but in terms of following California’s complex worker classification laws, ignorance is anything but bliss.