Let’s face it, hiring employees can be expensive; not just the cost of the services provided, but all of the administration that surrounds it, like payroll taxes and unemployment taxes. Now, at least in Colorado, add to that a state assessed fine beginning July 1, 2009 for all situations where the Division of Employment finds that an employer “with willful disregard of the law, misclassified employees” as independent contractors. And the fines are steep: $5,000 for each misclassified employee the first time, and $25,000 for each misclassified employee for the second and subsequent violations. OUCH!
In determining whether an independent contractor relationship exists, the sincle most important test is the amount of control maintained by the employer. If the employer controls the contractor then generally an employment relationship exists. In order to substantiate a contractor relationship, we suggest documenting the specific reasons why each independent contractor is not being classified as an employee, focusing on the lack of employer control.