Converting Independent Contractors to Regular Employees

The IRS, EDD and Department of Labor have been increasing enforcement of misclassification of independent contractors over the past several years, causing employers to go through difficult audits and hearings.  Handling these is not an area for DIY, since the exposure is too great. Recently, a US Department of Labor judgment for over $1,000,000 in back wages and damages resolved an investigation for only 77 misclassified contractors.

Not surprisingly, YPP has recently been engaged for consulting services for companies that were hit with fines and are being required to convert independent contractors to regular employees. This is a complicated process that involves much, much more than just contracting with a payroll service.

In addition to payroll issues, on the HR side, there are both requirements and recommendations to protect your business. Here is a partial list of items required to be taken into account, some of which include a decision about how to handle the conversion with your “former” contractors, who may be resistant to now completing employment documents and being treated as an employee:

  • Changing IC Agreements to Commission Agreements
  • Addressing Expense Reimbursements to comply with California requirements
  • I-9 and other Employment Documents
  • Converting IC compensation to Employee compensation, including the new expense of payroll taxes and workers’ compensation
  • Wage & Hour Compliance, including determining if the new “employees” are exempt or non-exempt
  • Ensuring Workers’ Compensation Insurance

If you need assistance evaluating your classification of independent contractors or if you need to convert contractors to employees, give us a call.

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