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Suggest where your voice 
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Welcome to the Bringing the 
Human Back to Human Resources 

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podcast. 
I'm Tracy Chernoff and I've 

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spent my entire professional 
career in HR. 

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Each week. 
We'll explore the delicate 

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balance between people and 
business with the aim to 

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reconnect the two and create 
meaningful outcomes. 

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Listen in as I share my own 
experiences, challenge the 

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status quo, and chat with guests
from various industries about 

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our mission to bring the human 
back to human resources. 

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Hi everyone, Welcome back. 
To the Bringing the Human Back 

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to Human Resources podcast. 
Thank you so much for being here

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for another week. 
I am audio. 

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Only. 
For this episode because I'm in 

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the middle of moving and I 
promise you, you do not want to 

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see my background, so please 
bear with me over the next few 

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weeks. 
I might I will probably be audio

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00:01:58,320 --> 00:02:02,280
only for any episodes that are 
solo, like just me without a 

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00:02:02,280 --> 00:02:07,360
guest, just because it's a it's 
a crazy chaotic time, so it's a 

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little bit easier not to worry 
about my background and what 

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things are looking like, so to 
speak. 

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So before I jump into this 
week's episode, please make sure

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that you are subscribed to my 
newsletter, which comes out 

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00:02:18,200 --> 00:02:20,440
weekly. 
You can subscribe to it at HR 

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00:02:20,440 --> 00:02:23,510
tracy.com. 
And be sure to follow me on all 

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of the social media accounts. 
LinkedIn, Instagram, Facebook. 

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00:02:27,390 --> 00:02:30,030
I don't have Twitter or TikTok, 
so almost all of the social 

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media accounts and my handle is 
HR Tracy for all of them. 

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So you can connect with me on 
any platform that feels best for

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you. 
And so many of you connect with 

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me on Instagram and LinkedIn. 
That's usually where I get the 

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most. 
You know, I guess like messages,

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let's say from those of you. 
So it's really nice to have that

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connection outside of the 
podcast where it's really kind 

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of just like one way and me 
speaking at you. 

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So anyway, moving on, this 
week's episode is about 

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contractors and the potential 
for misclassification. 

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I don't think that I've spoken 
about this before in terms of 

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like what contractors are 
compared to employees. 

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And the risk of 
misclassification, so we're 

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going to dive into that this 
week. 

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Before we kind of jump into 
misclassification, I think it's 

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really important to first 
understand the differences 

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between contractors and 
employees. 

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So there are some key 
differences. 

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The 1st is when we think about 
an independent contractor, 

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sometimes they're called 
freelancers or consultants. 

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These are ultimately 
selfemployed people who provide 

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services, resources, products. 
Etcetera to other companies or 

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organizations. 
They are managing their own 

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taxes, their own benefits. 
They're paid via invoice. 

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Typically, they have their own 
equipment. 

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They're responsible for their 
own upskilling and development 

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and coaching and training. 
So let's jump into the 

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misclassification side of this 
conversation. 

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As an. 
HR. 

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Professional, it is really 
important that we are clear on 

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not only the differences between
contractors and employees, but 

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also where we can understand or 
what we can do as far as 

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understanding what we can do to 
mitigate any risk of 

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misclassification. 
So I found a really great 

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resource from the IRS actually, 
which is the IRS20 factor test. 

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And it helps companies to 
determine whether someone is an 

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independent contractor or an 
employee. 

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And there are 20 factors, so 
bear with me as we go through 

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all 20 of them. 
The 1st is level of instruction.

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If the company directs when, 
where and how the work is done, 

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this control indicates a 
possible employment 

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relationship. 
Why is that? 

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That is because employees are 
fully reliant on the direction 

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of a company, right? 
Whereas a contractor and this. 

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You know this is not like a hard
and fast thing like there can 

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there is Gray area in in all of 
this. 

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So just you know take a little 
bit of it with a grin of salt 

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like don't freak out if you have
contractors that are directed, 

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it's it's you know partner with 
your attorneys and your counsel 

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to make sure that you are not 
misclassifying. 

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But I just want to share that 
you know there these are things 

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that the IRS for example could 
evaluate if there was any 

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concern raised about 
misclassification. 

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So level of instruction again 
for a contractor, you know they 

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are tasked with something and 
then they determine how they 

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work on it. 
Now of course there is that Gray

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area where someone might be 
contracted to work or cover like

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a maternity leave or do 
something that is not as much 

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project based, but more so you 
know they're working on 

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something consistently. 
It's there is still. 

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A bit of Gray area there, but 
misclassification can be really 

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common or is really common, so 
it's not as Gray as you'd think 

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it is Amount of training. 
Requesting workers to undergo 

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company provided training 
suggests an employment 

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relationship, with the exception
of course. 

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I want to remind everyone that 
certain states do require 

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contractors to go through 
legally required training. 

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Degree of business integration 
Workers whose services are 

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integrated into business 
operations or significantly 

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affect business success. 
Extent of personal services 

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companies that insist on a 
particular person perform 

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performing the work assert a 
degree of control that suggests 

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an employment relationship. 
In contrast, independent 

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contractors typically are free 
to assign work to anyone. 

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Also Gray area there control of 
assistance. 

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Continuity of relationship. 
I won't go through all of these 

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because I think we understand 
that there is Gray area and you 

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should connect with an an 
attorney to make sure that you 

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are clear and in the green. 
Flexibility of schedule demands 

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for fulltime work. 
So fulltime work gives the 

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company control over most of a 
person's time, which supports a 

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finding of an employment 
relationship. 

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So contractors typically. 
Are again you know we'll we'll 

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see them working on an hourly or
project related basis, but there

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are moments where contractors 
are working on a full time 

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basis. 
So again Gray area here need for

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onsite services sequence of 
work, meaning if a company 

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requires work to be performed in
specific order or sequence 

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requirements for reports, method
of payment, hourly, weekly or 

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monthly pay schedules are 
characteristic of employment 

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relationships unless the 
payments. 

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Or a convenient or simply a 
convenient way of distributing A

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lump sum fee. 
So this comes back to what I had

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initially said about, you know, 
payroll schedules versus a 

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contractor who's paid by 
invoice, payment of business or 

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travel expenses. 
Again, that is a benefit, right?

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That's a perk. 
That is a one way to really, 

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clearly distinguish the 
difference between contractors 

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and employees, provision of 
tools and materials, So in this 

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case equipment. 
Investment in facilities. 

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Independent contractors 
typically invest in and maintain

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their own facilities. 
Employees typically rely on 

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their employer. 
You know in the case, for 

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example, for an office and 
things like that realization of 

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profit or loss. 
Workers who receive 

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predetermined earnings, who have
and have little chance to 

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realize significant profit or 
loss through their work 

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generally are employees. 
That I think is usually pretty 

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clear between employees and 
contractors. 

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If someone works for multiple 
companies, people who 

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simultaneously provide services 
for several unrelated companies 

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are likely to qualify as 
independent contractors. 

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This again comes back to the 
ability to work for multiple 

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organizations. 
If your company is remote or 

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Now let's get back to the 
podcast. 

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Availability to public so 
regularly making services 

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00:10:12,230 --> 00:10:15,070
available to the general public,
for example, is typically in 

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support. 
Is someone that would be an 

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00:10:17,070 --> 00:10:20,750
independent contractor control 
over discharge or termination? 

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00:10:20,830 --> 00:10:24,030
A company's right to discharge a
worker suggests an employment 

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00:10:24,030 --> 00:10:26,990
relationship. 
In contrast, a company's ability

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to terminate independent 
contractor relationships 

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generally depends on contract 
terms. 

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00:10:31,470 --> 00:10:33,070
Which is so true if you work 
with an agency. 

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Sometimes in order to terminate 
someone you do have to provide 

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00:10:36,750 --> 00:10:39,670
certain amount of notice. 
It depends on the terms of the 

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00:10:39,670 --> 00:10:42,350
contract and the conditions 
within that contract. 

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So really important to follow 
all of that if you are working 

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with contractors today. 
And then finally right of 

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termination, most employees 
unilaterally can terminate their

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00:10:52,190 --> 00:10:54,550
work for a company without 
liability, whereas independent 

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00:10:54,550 --> 00:10:57,710
contractors cannot terminate 
services without liability 

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except as allowed under their 
contracts. 

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00:10:59,980 --> 00:11:05,140
So hopefully this 20 factor test
can help all of you to better 

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00:11:05,140 --> 00:11:08,380
understand the differences and 
avoid misclassification because 

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misclassification is super 
common again. 

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And you know there are moments 
where companies do kind of 

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00:11:18,820 --> 00:11:22,780
operate too much in a Gray area 
and it's important that there is

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00:11:22,780 --> 00:11:29,380
clarity and guidance around the 
difference between a contract. 

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00:11:30,290 --> 00:11:32,690
Relationship and an employment 
relationship. 

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00:11:33,770 --> 00:11:37,250
So to further expand on this, 
the IRS goes on to share that 

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00:11:37,490 --> 00:11:43,010
because the FLSA only applies to
employeremployee relationships, 

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00:11:43,050 --> 00:11:44,810
independent contractors are not 
covered. 

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00:11:45,090 --> 00:11:50,210
So the FLSA is what determines 
wage minimums, right and benefit

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00:11:50,210 --> 00:11:55,290
requirements and who can be 
salary versus hourly and all of 

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00:11:55,290 --> 00:11:56,450
those things. 
I'm not going to go through 

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00:11:56,450 --> 00:12:02,150
everything, but. 
All of those coverages are only 

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00:12:02,150 --> 00:12:05,190
applicable to employees, so it 
is also important that when you 

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00:12:05,230 --> 00:12:08,870
are hiring, whether you're 
hiring a contractor or an 

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00:12:08,870 --> 00:12:13,510
employee, that you are clear on 
FLSA standards for employees and

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00:12:13,510 --> 00:12:17,710
that contractors do not abide by
this or are not covered by the 

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00:12:17,750 --> 00:12:22,130
FLSA So. 
Being clear on all of this 

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guidance and all of the 
government regulation is super 

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00:12:25,130 --> 00:12:27,770
important and again I can only 
stress this enough. 

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Having a good attorney to work 
with is really, really 

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00:12:31,130 --> 00:12:34,050
important. 
Employment law attorneys are 

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00:12:34,130 --> 00:12:37,890
very helpful when it comes to 
being able to navigate these 

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00:12:37,890 --> 00:12:42,250
differences and what companies 
are required or you know, 

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00:12:42,250 --> 00:12:46,450
responsible for when it comes to
these, you know, relationships. 

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00:12:47,390 --> 00:12:52,230
The IRS considers a worker to be
an employee if a company has the

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00:12:52,230 --> 00:12:55,230
right to control not only what 
work will be done, but also how 

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the worker will do that work. 
If someone is treated as an 

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independent contractor, but the 
IRS decides that there's 

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sufficient control from an 
organization over the worker to 

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create an employment 
relationship, the IRS can hit 

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the organization with a very 
costly bill for employment 

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taxes. 
That should have been paid, you 

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know, withheld and paid. 
So this is kind of the outcome 

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of misclassification. 
If someone is misclassified as 

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an independent contractor, that 
means the business has not been 

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withholding taxes, employment 
taxes specifically for that 

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individual. 
And the last person anybody 

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needs a problem with is probably
the IRS. 

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And so it is. 
So I know I keep reiterating 

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this, but it is so critical to 
understand and make sure that 

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people are classified correctly.
In order to really make sure 

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that you are in the clear, I 
would highly recommend that you 

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use this 20 factor. 
I think it's a 20 factor common 

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law test. 
I think that's technically what 

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it's called to ultimately 
measure the level of control. 

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These are all reflected again on
the IRS. 

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I'll make sure that I link this 
resource in the show notes. 

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And the other thing that I'll 
say is that there are companies,

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there are agencies out there, 
not only agencies, but major 

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companies that make employing 
contractors much easier. 

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And so for U.S. companies, for 
example, that maybe have a need 

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for someone outside of the US, 
they can employ a contractor. 

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In another country and kind of 
offset all of their 

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responsibilities and you know 
the requirements that maybe 

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those companies do not have a 
clear handle on to those 

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companies and agencies that help
to support the contractor 

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relationship. 
But there is of course a fee and

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the company still has the 
liability and the requirement 

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and the requirements to make 
sure that they with internally 

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are following the appropriate 
processes. 

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You know for example in like 
super large, really structured 

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companies, you won't find 
contractors in any all hands 

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meetings or you know meetings 
that discuss like the business 

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at length because of the access 
to information and the control 

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over that information. 
And and of course you know 

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thinking about some of these 
factors, we can understand that 

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this is a one way to be very 
clear about the difference. 

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In the relationship, and I know 
from speaking with HR people in 

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the past that sometimes there's 
this feeling of, well, I kind of

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feel bad they're doing all this 
amazing work and I want to be 

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able to give them a gift card 
for their birthday or I want to 

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be able to do XY&Z. 
My best advice to you is to not 

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feel bad and just don't do it, 
because when you blur that line 

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between contractor and employee,
you raise the risk for your 

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company. 
Of potentially misclassifying 

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that contractor. 
So it's I would just say best 

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advice, work with an employment 
law attorney and make sure that 

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you are not blurring the line 
where it's unclear whether 

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they're a contractor or an 
employee because you're going to

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create so many challenges not 
only for you but also for your 

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organization. 
So this obviously. 

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Is a super high level. 
Kind of like introduction almost

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to contractors and 
misclassification or potential 

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misclassification. 
If this episode was interesting 

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00:16:34,150 --> 00:16:35,390
to you and you want to hear 
more. 

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We've heard from Carly Juanos 
already. 

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She's our resident employment 
law attorney. 

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At this point on the podcast, I 
could always have her come back 

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00:16:44,150 --> 00:16:45,910
and we can dive into this a bit 
more. 

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So just. 
Let me know. 

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If you listen to this podcast on
Spotify, there will be a pull 

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00:16:50,830 --> 00:16:53,710
up. 
So you can vote if you'd like to

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00:16:53,710 --> 00:16:55,990
hear more of this. 
Otherwise, e-mail me at 

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00:16:55,990 --> 00:17:00,990
contact@hrtracy.com or write to 
me on Instagram or LinkedIn and 

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00:17:00,990 --> 00:17:03,830
let me know if you want to dive 
into this a little bit more 

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00:17:03,830 --> 00:17:07,349
deeply so we can have an even 
deeper understanding of the 

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difference between contractors 
and employees. 

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Thank you so much for listening 
to the episode this week. 

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00:17:13,710 --> 00:17:15,589
I hope you have a fabulous week 
ahead. 

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00:17:15,589 --> 00:17:18,750
Wish me luck as I move back to 
New York, because moves are 

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00:17:18,750 --> 00:17:21,589
always a nightmare and we. 
Will chat soon. 

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Have a great week. 
Hey, just before you go, don't 

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00:17:25,390 --> 00:17:28,190
forget to subscribe to this show
so that you are the first to 

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00:17:28,190 --> 00:17:30,190
hear when an episode drops each 
week. 

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00:17:30,580 --> 00:17:33,540
And maybe leave a 5 star review 
and a comment about how much you

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00:17:33,540 --> 00:17:36,060
loved this episode. 
Plus, if you have someone in 

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00:17:36,060 --> 00:17:38,500
mind who would really enjoy this
episode, make sure you share it 

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00:17:38,500 --> 00:17:40,500
with them. 
Thank you so much for tuning in 

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00:17:40,500 --> 00:17:41,860
and I'll see you next. 
Week.