When I lost my Director of Marketing position in my 20s, I accepted a temporary assignment through a staffing agency at a major healthcare company. At the time, I had limited work experience and no legal training. Like many workers, I didn’t think much about who my actual employer was. On my résumé, I listed the healthcare company, but my paycheck came from the staffing agency.
In hindsight, the staffing agency—not the healthcare company—was my employer. The two organizations had a clear contract and were on equal footing, so there were no concerns about worker misclassification. Unfortunately, that clarity is often missing today.
As I told Geoff Williams for an article on American Express’ blog:
Far too many businesses are hiring through agencies that they think will be the employers of record, when in fact the agency is nothing more than a matching service for 1099-MISC contractors—other business owners—to meet clients. In states like New York, when the relationship is not clear at the outset, I often see them fall apart and end up in the Department of Labor, entangled in an unemployment insurance claim that leads to a workers’ compensation inquiry and penalties in both agencies.
Is Your Contractor Really an Employee?
This issue isn’t going away. In fact, the pandemic made it worse. Consider how much data the Department of Labor (DOL), Small Business Administration (SBA), and tax departments gathered from pandemic assistance applicants. For the first time, independent contractors were allowed to apply for unemployment benefits. Workers with multiple income sources often listed clients as employers—just as I did decades ago.
So, how do you know if someone is truly an independent contractor or an employee? Here are three common signs of employment:
- Their personal Social Security number appears on 1099-NEC or -MISC forms.
- They don’t own an independent business offering the services they provide to you.
- They work full-time for your business and have no other clients.
Is Worker Misclassification Really a Big Deal?
Misclassification can lead to costly consequences, including penalties from multiple agencies. It’s not just a legal issue—it’s a business sustainability issue. When relationships aren’t clear, they often end up in disputes that drain time, money, and trust.
For more tips on avoiding missteps when hiring temporary workers, read the full AE article.
Concerned you’ve misclassified employees?
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