In the daily news briefings today was a small article with big news. FedEx succumbed to the same problem that has plagued many a business, both small and large. They classified drivers as independent contractors. Fed Ex was sued for this misclassification and lost a $14.4 million settlement for 200 drivers. $720,000 per driver! Pretty hefty fine.
I don’t know the particulars of this case, but I see this happen frequently in smaller businesses. They think they can have someone come in as an independent contractor, thus avoiding taxes. Unfortunately this arrangement is not quite as cut and dry as that and businesses get in trouble. The “contractor” negotiates a deal that includes some benefits, for example health benefits. Well that starts messing the relationship up. And when that relationship gets messed up taxes and penalities have to be paid.
There are definite rules to who is and who is not an independent contractor. Here are the rules according to the IRS. And here is another set according to the Fair Labor Standards Act. Lastly, here is another set from the perspective of the independent contractor from Nolo on Preserving your status as an Independent Contractor.
If you are an employer read these rules very carefully and make sure you comply if you are hiring someone as a contractor. A mistake can be very expensive. Remember $720,000 per person for Fed Ex, and that was on appeal.