Legal News You Can Use

Saving Tour Operators Money, Issue Three

Your Company Doesn’t Have Employees, Only Independent Contractors? Think again!

Improper worker classification is a significant area for legal risk. It directly affects liability under federal tax laws and federal, state, and local employment laws. Improperly classifying your workers as independent contractors when they are actually employees is one of the top nine costly tax pitfalls for small businesses.[1] The California Chamber of Commerce listed this mistake as the third “top” reason an employer might get sued.[2]

It can be tempting to avoid this complex area of business by adopting an approach of identifying all or many of the people who work for your company as “independent contractors.” But proper classification of someone who works with you as an employee or an independent contractor depends on much more than the words you use to describe the relationship. Read that sentence again.

Failing to classify someone as an employee or incorrectly classifying someone as an independent contractor can result in (a) financial liability for employment taxes that should have been withheld, plus the late fees and penalties the IRS applies, and (b) costly employment disputes and regulatory actions for failing to implement applicable employment laws such as medical and safety leave policies that are triggered once your company reaches a certain number of employees.

Never classify a worker as independent contractor merely for the sake of convenience. If you are classifying someone who is a really an employee as an independent contractor, change that practice and begin complying with employment tax and other applicable employment laws.

To learn more about worker classification, how to approach it, and other tips that could save your business money, visit my blog at I also welcome your comments and suggested topics at that site.

[1] Robert Boeshaar, former IRS attorney, Potential Tax Pitfalls for the Small Business Owner; Nine Tips to Stay Out of Trouble with the IRS, live presentation to Seattle Select Attorneys Association, Feb. 25, 2014.


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Please be aware that the information in this tip sheet is not a substitute for legal advice, which can only be given after considering the specifics of your company and its business practices. We make no representation that this information will protect any legal rights or obligations or provide actual money saving results. Every company and circumstance are different. In order to protect your legal rights and obligations and accurately apply the information provided here to your company, you should consult with an attorney. For legal counsel you may wish to contact Mona McPhee at McPhee Law Office.


© Mona K. McPhee d/b/a McPhee Law Office 2014. All text content and photo of Mona McPhee is protected by copyright with all rights reserved.