3 Easy Ways to Misclassify Employees
As the gig economy has gained steam in Canada, there’s been more attention paid to how companies are hiring and employing people. While there are many upsides to newer forms of employment, some advocates and government officials are concerned about employers taking advantage of uninformed workers.
One of the emerging concerns is employee misclassification. Some people worry unscrupulous employers are purposefully misclassifying their employees to circumvent their obligations. These might include paying employer portions of benefits or providing paid vacation and holidays.
While there are undoubtedly some employers who seek to take advantage of these “loopholes,” it’s much more common for employers to accidentally misclassify employees. Here are a few easy ways misclassification happens. Once you’re aware of them, you can take steps to avoid classifying your employees incorrectly.
1. The Most Common Mistake Is to Misclassify Employees as Contractors
Most concerns around employee misclassification have cropped up due to the increasing number of people who work as contractors. Often known as freelancers or self-employed professionals, these workers are not considered employees.
Contractors are considered to be businesses, and when they work with your business, it’s a business transaction rather than an employee-employer relationship. The contractor has increased freedoms, such as negotiating their rate of pay, determining their schedule, the ability to outsource work, and ownership of tools.
Since contractors aren’t employees, you aren’t responsible for withholding tax or offering paid vacation.
It’s relatively easy to misclassify employees as contractors. You may believe you’ve hired a contractor. However, you might determine their wage, when they work, and how the work is completed. If so, you may actually have an employee on your hands.
2. Misclassifying Permanent Employees as Temporary
As the staffing industry has grown, a lot of people have decried unscrupulous firms that take advantage of workers who may not know their rights. While many staffing firms are legitimate, these “bad apples” give everyone a bad name.
A supposedly common practice among these agencies and their clients is to define permanent employees as temporary for as long as possible. This usually means the “temporary” employee isn’t entitled to wage increases, benefits, or other perks that would be afforded to a permanent employee. The problem arises when the worker continues to be employed steadily, sometimes for years at a time.
It can actually be somewhat easy to misclassify a permanent employee as a temporary one. You may have a project continue on, so you renew an employee’s contract several times over. They may move to new positions within the company, so you believe they’re “temporary.”
A government official may have another view.
Many governments are now taking steps to make it more difficult to do this, such as forcing temporary contracts to have end dates. In some countries, employers are forced to make an offer of permanent employment if a temporary employee stays on for a certain period of time.
3. Misclassifying Full-Time Workers as Part-Time Workers
This is another relatively easy mistake for employers to make. You hired someone on and allocated them a certain number of hours or shifts per week. You believe they’re part-time workers.
This can depend on the industry you’re in. Some industries have higher or lower hour totals to be considered full-time or part-time. You may also run into a situation where a part-time employee begins working full-time hours regularly, but you don’t change their employment status.
Much like the temporary employee, a part-time employee may not be entitled to the same benefits as full-time employees. This is why it’s a problem when workers who are classified as part-timers put in full-time hours.
If employee misclassification is a concern in your firm, then you’ll want to carefully review the legal definitions and ensure your employment contracts use the same definitions. If you need help checking or maintaining compliance, get in touch with a back office service provider. They can help you avoid misclassification missteps.