Misclassifying employees as freelancers can have serious consequences for businesses in Kentucky. This error may occur inadvertently due to various factors.
Understanding these pitfalls can help businesses avoid costly legal and financial repercussions.
Ambiguous job descriptions
About 364,200 small businesses operate in Kentucky. One common mistake these businesses, along with their larger counterparts, may make is providing vague job descriptions. When roles lack clear definition, it can be tempting to classify workers as freelancers to maintain flexibility. However, if the tasks align more with those of an employee than a freelancer, the classification may be incorrect.
Control over work schedule
Another factor is excessive control over a worker’s schedule. Freelancers typically have autonomy over when and how they complete tasks. If a business dictates specific working hours or requires on-site attendance, the worker may be an employee rather than a freelancer.
Integration into company operations
Freelancers generally work independently. They usually lack deep integration into a company’s daily operations. However, if workers get close supervision, receive training or use company resources extensively, they may be employees.
Duration and regularity of work
The frequency and duration of work can also influence classification. While freelancers may work irregularly or on a project basis, consistently providing services over an extended period suggests an employment relationship. Businesses should assess whether the nature of the work aligns with intermittent freelance gigs or ongoing employment.
Financial control and investment
Freelancers typically invest in their own tools, equipment and training. If workers rely primarily on company-provided resources or get reimbursement for expenses, they may be economically dependent on the business. They may be more appropriately classified as an employee.
Misclassifying employees as freelancers can result in penalties, back taxes and legal disputes. By avoiding common pitfalls, businesses can mitigate the risk of misclassification.