Don't Treat Contractors like Regular Employees

Posted by: Rod Kurtz on February 10, 2006

It is not a good idea to treat contractors the same as regular employees. By definition, a contractor is in a different relationship with the company, and it is important to set boundaries so the difference in the relationship is maintained.

Among other things, contractors do not receive employee benefits from the company, like health and disability insurance, and they pay their own taxes. Employers do not pay payroll taxes for contractors like they do for employees. If a contractor is reclassified as an employee by a government agency or court because the contractor was, in fact, treated like an employee and did not meet the contractor tests that different agencies use, it can be very costly for the employer. Employers can be held liable for overtime, employee benefits, various taxes, statutory penalties, etc. These are very expensive penalties, as Microsoft learned in the late 1990s when scores and scores of contractors and temporary workers were reclassified as employees.

The economic downside of reclassification of a contractor as an employee usually far outweighs concerns about whether contractors feel they are a part of the daily corporate culture. Contractors may be considered by the company as a regular part of the workforce — but because of the penalties associated with misclassification, it is important to observe different treatment. This does not mean contractors need to be treated like second-class citizens. Depending on how contractors are used, companies can find a myriad of ways to welcome them into the corporate culture while treating them differently from regular employees. But concern about a contractor being offended by being treated differently should not override the need to observe differences.

To read the full article at AllBusiness.com, click here

Barrie Gross
University of San Francisco’s School of Business and Management
AllBusiness.com

Reader Comments

Don

September 8, 2006 10:47 AM

So my employer pays all of his employees as contractors, but then treats us and expects us to behave as full-time employees. He claims he's doing nothing wrong and we're highly encouraged to not talk about it. Do we contact the IRS via a Form 3949-A? Or our city government? What can we do?

Post a comment

 

About

Want to improve the way you run your business? Entrepreneurs, academics, and consultants from diverse industries offer practical advice on a variety of topics each business day.

To submit a tip for consideration, first check our archive of previous tips to make sure you're not repeating a tip someone has already contributed. Then send the tip to Small Business channel contributor Michelle Dammon Loyalka. Because of the volume of material she receives, she may not respond to each individual.

BW Mall - Sponsored Links

Buy a link now!