Misclassification is when someone is assigned to the wrong category or group. The term is often used in the context of employee misclassification. Employee misclassification is when a business classifies a worker as an independent contractor but treats them as if they were an employee. 

Many countries have labor laws prohibiting employee misclassification. Employers who fail to follow these laws may face financial penalties, which is why it’s essential for employers to remain compliant and not risk misclassification.

Organizations may incidentally misclassify an employee as a self-employed independent contractor. Or, in some cases, it's anything but a mishap — and managers might do it purposefully as a method for avoiding taxes and the additional expenses related with recruiting a full-time employee.

Generally, hiring and paying independent contractors is simpler and less expensive than hiring a full-time employee.

With self-employed entities, organizations don't have to pay a set compensation, offer them benefits, add to government-backed retirement, provide office space or equipment, or manage global employment laws.

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Identifying Employee Misclassification 

There are numerous factors to consider when determining whether an employee is misclassified. However, the largest indicator is the relationship between the employee and the employer.

• Control: Employees are in a subordinate working relationship with their employers. Employees are under direct oversight and their manager controls the work they complete. Self-employed entities are not under direct oversight. Independent contractors can refuse work because they run their own business.
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• Equipment: Employees are given devices, hardware, and programming projects to follow through with their tasks. To complete the task at hand, independent contractors employ their own workflow processes and tools.
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• Work Hours: Employees, for the most part, have a proper schedule, similar to Monday to Friday, all day. The hours that independent contractors work are chosen by them because they are not under direct supervision.
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• Training: Employees receive training and opportunities for advancement within their companies. Self-employed entities pay for their own skills-building and advancement.
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Knowing the key differences between employees and independent contractors is key in avoiding the risk of misclassification.

Hire employees compliantly and avoid misclassification with Borderless. Book a demo today.