If your business is paying persons as independent contractors you risk substantial penalties if they should, in fact, be paid as employees. Effective January 1, 2012, it is considered unlawful to wilfully misclassify an individual as an independent contractor.

Generally, an individual is not an independent contractor if you have the right to control or direct only the result of the work, and not what will be done and how it will be done or the method of accomplishing the result. It is a question of fact. If you are wrong and the person should be classified as an employee, you face civil penalties of $5,000-$15,000 per violation. The penalties are increased if an established pattern of misclassification is found.

If you are an accountant advising your clients as to classifications, you can be held jointly and severally liable with your clients for the penalties.

It is important to re-evaluate any independent contractor relationships as soon as possible.

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