Business owners throughout Illinois, including popular areas like Geneva, St. Charles and Batavia are wise to understand the distinction between an independent contractor and an employee. According to the Illinois Department of Labor, a worker is considered an employee unless all of the following are true:
- The worker has independent control over the performance of service,
- The service the worker does is outside the normal scope of the employer,
- The worker has their own independent trade or business or is deemed a sole proprietor
Other agencies, such as the Internal Revenue Service, have somewhat different tests, but the main component of all the tests is that the focus is on the control the “employer” has over the “worker. This may seem relatively straightforward, but misapplication is common. A failure to understand the distinction between an independent contractor and an employee can result in serious repercussions for employers. The following will provide additional information to help better ensure employers use the correct classification for their workers.
What happens if I misclassify a worker?
It may be tempting for business to try to reduce their costs by retaining a worker as an independent contractor. However, businesses who misclassify an employee as an independent contractor can face serious penalties. These include financial penalties for failing to report wages paid to employees and pay to the unemployment insurance trust as well as interest. Business owners can even face personal liability if evidence exists that the misclassification was intentional.
In a recent case, the Attorney General argued that a construction company failed to properly classify hundreds of employees resulting in over $700,000 in unpaid overtime wages. An investigation resulted in evidence to support the claim, including evidence the employer paid a fixed-day rate regardless of the hours worked.
What are my rights as a worker or my obligations as an employer?
Whether a worker or a business owner, it is important to understand the distinction between employee and independent contractor as classification has a direct impact on both parties. Both the courts and Federal and State administrative agencies continue to refine and enforce these classifications.
Business owners must stay informed about current legal standards and carefully evaluate their workforce to ensure compliance. By doing so, they protect themselves from potential legal troubles and uphold fair labor practices. As the landscape of employment law evolves, staying educated and proactive in worker classification will be key to maintaining a successful and legally compliant business in Illinois.
Consult an experienced lawyer if you need guidance on whether your preferred method of retaining workers meets the standards for having them classified as an independent contractor or you otherwise need assistance with business legal matters in Illinois.