Calling an employee a contractor feels like an innocent enough move, especially when your business is running on thin margins and doing so could save you bundles in taxes. But a misclassification of an employee as a contractor can cost you in the long run.
It’s easy to see the incentive: Employers have to pay taxes, government benefits, corporate benefits and potentially overtime pay for employees, but they are not responsible for these costs for contract, or freelance, workers.
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But if an employer has been incorrectly classifying employees as contractors -- and therefore skipping out on requisite taxes -- and the truth comes back to roost, the impending tax bill can be backbreaking. That’s why its important to know the difference, legally, between an employee and a contractor.
The infographic, embedded below, created by payroll software company ZenPayroll, provides a flowchart to walk you through determining whether you need to be classifying a worker as an employee or a contractor.