Avoid employee misclassification risk

Governments around the world are getting tougher on employment misclassification, imposing penalties and presenting serious risk to your business.

What's your employee misclassification risk?

Use our free employee misclassification risk calculator to find out your risk level – and what you can do to fix it. No personal or financial information required, and this information won’t be shared

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Do you have contractors in the same countries where you have current business entities?

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Can the contractor choose their own work hours?

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Does the contractor have full autonomy over how they accomplish a task?

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Is the contractor engaged with your company for a temporary period?

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Does the contractor publicly acknowledge they are self-employed?

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Does the contractor supervise employees or other independent contractors?

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Does the contractor work with other businesses in addition to yours?

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How does the contractor claim expenses?

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How is the contractor paid?

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Does the contractor manage their own professional liability and other personal insurances?

Frequently asked questions

  • What is employee misclassification?

  • Should I be worried about employee misclassification?

  • What determines contractor misclassification?

  • How do I reduce my employee misclassification risk?

What is employee misclassification?

Misclassification occurs when a worker is mistakenly employed as an independent contractor, rather than a full-time employee. This means that workers and employers might not be paying all of the correct employment taxes due, and not receiving the correct employment rights and benefits according to local labor laws and regulations.

Contractor relationships are great for temporary roles when you need specialist skills or additional bandwidth. But contractors by definition shouldn’t be in charge of other employees or responsible for major initiatives if you intend to comply with classification regulations. Contractors should also be able to work to their own schedule, with no set work hours, and the ability to take on other clients.

Are you at risk of misclassifying contractors?

Some employers establish relationships with workers as ‘pseudo-employees'. The employer considers the worker to be a contractor, but under local legislation the worker would likely be deemed an employee. These ‘pseudo-employees' are full-time, ongoing staff members where their work and working conditions are set by the company, but who are employed as a contractor. This relationship is an example of employee misclassification in action.

Should I be worried about employee misclassification?

There can be serious consequences for misclassifying workers, either accidentally or on purpose.

The risks can include heavy penalties and fines, plus back taxes. You may also be responsible for compensating workers deemed misclassified by paying them for lost wages and any benefits they missed out on.

Misclassification can also create opportunities for legal issues to arise, from workers, unions, or other groups harmed by incorrect designations.

Did you know that companies of all shapes and sizes have been hit with misclassification penalties in recent years?
  • In the UK, Uber was forced to reclassify its drivers from contractors to another classification, ‘worker’. This highly-publicized case took five years to go through the legal process.

  • After a 10 year court case, Swift Transportation, a US-based trucking company, paid out over $100 million in damages to 20,000 workers who were misclassified.

Lastly, misclassification can create negative perception issues: workers may quit or leave, potential employees may view your company unfavorably, and your customers may rethink their relationships.

While you may not be affected by contractor misclassification rules today, it’s still important to know the risk and act proactively to ensure your business is in good legal standing in every country you have workers around the world.

What determines contractor misclassification?

In the United States, the IRS says that “anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.”

But the rules vary across different countries, and they are always changing.

However, there are a number of indicators that can be used to evaluate your independent contractor misclassification risk.

Protect against misclassification risk

If you are concerned about contractor misclassification at home or abroad, don’t let doubt stop you from growing your business. Details vary from country to country, but a global HR platform like Remote makes it so much easier to manage compliance with relevant local laws.

Remote constantly monitors for misclassification risk to help customers take action before it's too late. Sign up now to protect your business and hire internationally with confidence.

Read our expert guide to contractor misclassification for more detailed guidance on how to avoid classification risk.

Common factors used to determine worker classification

These indicators include, but aren’t limited to, the following areas:

  • How is the worker paid?

  • How important is the work?

  • What’s the length of the relationship?

  • Does the contractor manage or direct other workers?

Use our misclassification tool above to help assess your specific situation and find out how exposed your business might be to fines or penalties.

How do I reduce my employee misclassification risk?

There are a number of simple steps you can take to first understand, and then reduce your risk of contractor misclassification.

  • Understand your current situation

    If you’re already working with contractors, make sure you’re not crossing any lines. Our free calculator will walk you through the key questions and assess your current risk.

  • Learn the rules

    When you begin working with new contractors, double-check each country’s misclassification rules to make sure you stay within the lines. Use Remote to onboard, manage, and pay contractors — and access our free legal advice guides.

  • Use compliant contracts

    You must use legally-compliant contracts that relate to local labor laws wherever your contractor is based. It’s not enough to use a standard contract worldwide. Our legal team has created compliant contracts that can be edited, reviewed, and signed all within the Remote platform — so you can welcome new contractors effortlessly.

  • Make use of Employer of Record services

    If you are working with contractors and have a high risk of misclassification, it might make sense to bring them on as a full-time employee. When they’re located in the same country as your business entity, that’s simple enough. But if they’re based in a foreign country, it can be confusing. Employer of Record services can help you employ a worker as a full-time employee, paying all relevant taxes and benefits, without the need to set up international entities. Remote is trusted by leaders of international organizations, large and small. Find out how Remote can help you convert contractors to employees around the world.

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