Why employee classification requires careful consideration

Incorrectly classifying an employee can carry serious consequences.

Incorrectly classifying an employee can carry serious consequences.

There may seem to be many attractive benefits to hiring freelancers or independent contractors instead of full time employees. Facing an uncertain economy, many companies turned to the contingent workforce in an effort to save on costs. 

For one, it can allow businesses more flexibility in distributing projects. However, as the U.S. Department of Labor has been taking greater notice of employee misclassification, it has become even more important for HR to be aware of how these types of workers are being classified. If independent contractors end up performing duties like an employee, but are not correctly classified, it could lead to legal trouble for the company.

As an article in Business Management Daily points out, there is a difference between setting expectations for these types of workers, and trying to exert too much control over when or how they do their work. If the employer attempts to set too many regulations as to how the work is accomplished, it could end up meaning that the contractor is actually functioning as an employee. 

Some companies have taken advantage of independent contractor classifications because it allows them to avoid the full cost of bringing on a full time employee. However, it is essential to have the necessary legal contracts and agreements in place to mitigate the risk of being found as having misclassified an employee. The results of a misclassification could potentially be more costly than the savings gained from hiring an independent contractor. 

Businesses planning to hire independent contractors need to ensure they are completing this process correctly. HR software solutions can help develop the system that will keep track of all your employment details, helping to ensure that your employees are correctly classified.