The rise of the gig economy and remote work has made worker classification more complex, especially globally. Different countries and regions have varied regulations, like the UK’s IR35, California’s ABC test, and the US’s 1099 vs. W2 distinctions. Navigating these can be challenging, especially for businesses operating internationally.
It’s a lot, and those examples are just brushing the surface.
This regulatory patchwork creates major challenges for businesses like yours trying to operate internationally or engage a global workforce. Without proper understanding or robust management systems, you risk non-compliance, fines, and reputational damage.
Fortunately, we can help.
Below, we’ll walk you through everything you need to know about worker classification to correctly classify your employees and contractors.
Worker classification involves categorizing workers as either employees or independent contractors. This distinction impacts legal, financial, and operational aspects of your business.
The worker classification process involves evaluating the working relationship by focusing on three key areas: control and independence, financial aspects, and behavioral factors.
Control and independence consider whether the company dictates how and when work is done, and if the worker can seek other business opportunities. Financial aspects examine payment methods (regular wage vs. flat fee), the worker’s opportunity for profit or loss, and their investment in equipment or facilities. Behavioral factors look at whether the company provides training and if the work is a key aspect of the business.
The next step involves evaluating job duties and responsibilities. This includes examining specific tasks assigned, considering the required skill level, and assessing whether the work is ongoing or project-based.
Finally, the nature of the business relationship is considered. This includes the permanency of the relationship, any written agreements, provision of benefits, and whether the worker performs similar services for other businesses.
Aspect |
Description | Employee Indicators | Independent Contractor Indicators |
|---|---|---|---|
| Control and Independence | How much control the company has over the work and the worker’s freedom to seek other opportunities. | The company has significant control over the work. Controls how and when tasks are completed. Limits the worker’s ability to work for others. |
The worker has autonomy and independence. Decides how to complete tasks. Free to work for multiple clients. |
| Financial Aspects | How the worker is compensated, potential for profit/loss, and who provides equipment. | Regular compensation with limited financial risk. Receives a regular wage or salary. No financial risk. Company provides necessary equipment. |
Project-based pay with potential financial risks. Paid per project. Can incur profit or loss. Uses own equipment. |
| Behavioral Factors | Whether training is provided and how integrated the worker is into the business operations. | Integrated into company operations. Company provides training. Work is key to business operations. |
Operates independently with own expertise. Brings own expertise. Provides specialized services. |
| Job Duties | The nature of tasks, skill level required, and duration of the work. | Performs ongoing, varied tasks. Develops company-specific skills. Engaged continuously. |
Completes project-based work. Utilizes specialized skills. Engaged temporarily. |
| Business Relationship | The permanency of the relationship, written agreements, benefits, and exclusivity. | Long-term relationship. Receives employee benefits. Expectation of continued work. Works exclusively for the company. |
Temporary relationship. Fixed-term or project-based contracts. Doesn’t receive employee benefits. Works for multiple clients. |
As you can see from the factors above, finding a conclusive answer to any question (much less all of them) can be deceivingly difficult. There are other challenges you’ll need to keep in mind:
Unfortunately, the complexities of worker classification sometimes hold businesses back from hiring contractors at all. That’s one way to avoid problems, but we believe in a better solution: Worksuite.
Worksuite simplifies and streamlines the worker classification process for businesses of all sizes. We help you maintain compliance while maximizing the benefits of a flexible workforce. Here’s how: