Contractor vs Employee Assessment
Misclassifying workers is one of the most expensive mistakes founders make. Answer these 5 questions to assess your risk.
Misclassification Penalties
The IRS can assess back taxes (both employer and employee portions), interest, and penalties of up to 100% of taxes owed. States like California can add treble damages. In 2023 alone, California collected over $450M in misclassification penalties.
ABC Test StateStricter classification rules apply
1
Who controls HOW the work is done?
Think about methods, procedures, and the process of completing the work.
2
Does the worker have significant business expenses or investments?
Consider equipment, tools, marketing, office space, and other business investments.
3
What is the nature of the working relationship?
Consider the permanence and whether benefits are provided.
4
Is this work integral to your core business?
Would your business be significantly impacted if this work stopped?
5
Does the worker work exclusively for your company?
Consider whether they serve multiple clients or just you.
0 of 5 questions answeredEmployee: 0 | Contractor: 0