Merely having a worker sign an agreement that he or she is an independent contractor will not make him or her one in the eyes of the law. Since the penalties for misclassification can be severe, you must make sure that everyone who deals with independent contractors in your company understands that they can’t be supervised or otherwise controlled in the same way as employees. They are independent business people who must be treated as such.

What is a contract worker?
While temporary employees are hired through a staffing agency, contract workers are hired directly through a particular organization or business, usually to carry out a specific job, requiring particular skills. While ‘employees’ usually work for a set amount of time for hourly, weekly or monthly wages, contract workers generally work until their specific job is completed. The job of a contract worker will usually be carried out based on the worker’s own knowledge, under their own available working hours, normally supplying all of their own material. Being self-employed they will deal with their own tax issues, not paying income tax. Contract workers may also hire other workers to help them to complete their work and can carry out multiple jobs for various employers at the same time. In most countries, there are times when contract workers are not correctly identified. Major contractor markets such as Australia, US, Canada and UK have their own tests for correctly identifying an independent contractor.
The Importance of Correct Identification
Companies have discovered that by hiring independent contractors rather than ‘employees’, they can save on workers’ compensation insurance as well as state and federal taxes…. However, you risk considerable tax fines, other penalties, and a serious gap in insurance coverage if your independent contractors are later determined to actually fit an ‘employee’ definition. There are important points which should be researched to determine a worker’s’ correct title. If the title of ‘contract worker’, has not been verified and a work-related accident occurs, the employer may be held responsible for any penalties.

Dealing with a ‘Disguised Employee’
Individuals and their employers may have to pay unpaid tax and penalties, or lose entitlement to benefits, if their employment status is wrong. Many of the steps to define a contract worker are similar in the US and the UK. The one major difference is the financial punishment of the contractor in the UK, if they turn out to be a ‘disguised employee’, compared to the punishment of a client in the US for incorrectly labelling employees as contract workers. A ‘disguised employee’ can be described a as contract worker, filling out a permanent position for a certain company but not paying income tax or other bills expected from a permanent employee. The UK will have new laws coming in from April 2017. These new laws will shift the punishment of the contractor onto the employee. Continue reading from our Ebook here