Businesses operating in the construction sector often have unpredictable workloads. The company may have three major project clients at the same time, followed by a week of no new projects. As such, employment costs can be a major financial strain in the construction sector.
People running construction businesses often need to minimize their recurring staff expenses by hiring the fewest workers they can and augmenting their services with support provided by outside companies or independent contractors. A construction firm providing remodeling services may not consistently need expert tile installation, for example.
However, the company may occasionally need help laying tile in a kitchen or bathroom. Hiring an independent contractor or self-employed professional for such projects on a case-by-case basis can be a cost-effective solution. Construction companies need to ensure that they don’t misclassify the people they hire, which can expose the company to legal risk.
What is worker misclassification?
Most professionals are either direct-hire employees or independent contractors. Independent contractors work on a project or contract basis. They have no guarantee of regular income and may work with a variety of different businesses. Independent contractors often command higher hourly wages because they have to protect themselves from job injuries and manage their own workflow.
Misclassification occurs when a company hires a professional as an independent contractor but then proceeds to treat them as an employee. Misclassified workers often take legal action over the consequences of their employment arrangements.
What are the risks of misclassification?
If a current or former worker can claim that a company misclassified them, there could be various consequences for the business. Frequently, misclassification claims arise as a result of losing a job or an injury at work.
The worker claiming that the company misclassified them may want unemployment benefits or workers’ compensation coverage. The company may end up facing allegations of non-compliance with state statutes and financial liability.
In some cases, misclassifying workers can lead to tax consequences, as employers generally make employment tax contributions for their direct-hire employees. Misclassification can also cause significant damage to a company’s reputation, which may prevent other skilled workers from accepting job offers at the company.
Including the right language in contracts and verifying that a working relationship is not an employment arrangement can help those running construction businesses avoid potentially costly violations of employment law. Workers who claim misclassification can sue a company and potentially trigger a cascade of other legal consequences for the organization.