By: Ayah R. Islambouli, Esq.

Ensuring that your employees are classified and compensated correctly can help you avoid a very costly penalty from the Department of Labor. Recently the DOL sued and fined Virginia based company Steadfast Medical Staffing after it was found to have intentionally violated federal laws and deliberately misclassified its employees, including nurses and nursing aides, as independent contractors.  Since 2015, a total of 1,105 employees were incorrectly classified as independent contractors by the staffing company, and consequently were not paid overtime wages. Because of this serious error, Steadfast Medical Staffing ultimately paid $7.2 million which went to back wages and damages.

In order to avoid errors like this, both willful and unintentional, it is important to classify your employees correctly, and distribute the appropriate compensation, benefits and payroll taxes.  The DOL provides a helpful tool in helping to determine whether you have an employee or an independent contractor.  The guide provides several factors to consider when trying to classify your employee or independent contractor, which include:

  • Whether they are working for another business or their own business
  • Whether they are paid on a schedule or paid upon the completion of a project
  • Whether they use their employer’s materials/equipment or their own
  • Whether they typically work for one employer or multiple clients
  • Whether they have a continuing relationship with their employer or a temporary one centered around project completions
  • Whether the employer makes the decisions on how and when work will be performed or if the employee/IC makes these decisions instead
  • Whether the employer assigns work or the employee/IC decides their own work

These tests are set forth by the Federal government for federal tax and benefit purposes.  You must also comply with Ohio’s definitions of “employment.”  This is seldom a simple process. What is very clear is that simply excluding someone from the payroll does not mean that either Ohio or the federal government will accept that they are independent contractors.  And the results of a misclassification like this can be devastating, especially with the growing scrutiny of the IRS.

It is important to create and retain employment related records in order to protect and defend your business against employment-related litigation involving misclassification.

DISCLAIMER: The information provided does not, and is not intended to constitute legal advice. All information and content is for general informational purposes only. Readers should contact an attorney to obtain advice with respect to any particular legal matter. The information presented may not reflect the most recent legal developments. The materials are not intended to create, and your receipt of them does not create, an attorney-client relationship. You should not act or refrain from acting on the basis of this article without first seeking legal advice from an attorney licensed in your state.