You or your business could be at risk of being found to be an employer to someone previously thought to be an independent contractor. You could be sued for violation of The Fair Labor Standards Act (FLSA). There are many factors that can determine whether the person that worked for you is really an independent contractor or an employee. The duties of the worker are examined. The amount of control you have over the person and the services he or she provides can be important. Whether you have any control over the scheduling of the work provided and the time it takes can also play a role on whether a judge or jury will find a person to be an “employee” or not. The important thing to note is that you will need to prove that the person is not an employee and that keeping accurate time records as required for employees under federal and state law can make a difference in being able to defend or analyze the situation.
It is possible that besides wage claims for overtime or failure to pay minimum wage, other risks exist. The U.S. Department of Labor could investigate and possibly impose criminal penalties for wage violations, including any willful failure to accurately keep time records. There could be investigations from others, including the Colorado Department of Labor and Employment or the IRS. Risks of back taxes, interest, penalties for unemployment insurance, workers’ compensation, income taxes (state and federal), social security and unemployment taxes are possible problems that can occur as well if someone claims they were an employee and were not paid fairly and they are right or you cannot disprove it.
Legal counsel can help protect a business, regardless of its size, from wage claims from others and help assist you in keeping the right records and structuring the correct relationships with persons that provide services.
For more information, also see: Independent Contractor or Employee – More Than a Question of Taxes.