Classification - What Is It?

A guide to understanding classification and your contingent workforce

Worker classification is all about having a strategy to keep problems off your desk. Those “problems” can include the tax authorities and/or the regulatory bodies that may deem one or more of your contract workers to be an actual employee. As a result, your organization may be liable for back payments of payroll deductions, plus penalties. Additionally, your organization will be “on the radar” of those tax authorities, so that you can expect more audits in the future.

worker classification - can you spot the difference?
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The worker misclassification issue is one that arises from the government’s concern that organizations might try to dodge their tax obligations by misclassifying workers, either accidentally or on purpose. Avoiding employee payroll deductions has a negative effect on tax revenue and the viability of public benefits such as pensions and worker injury compensation. 

Most jurisdictions, including the USA and Canada, have established tests to provide guidance on classification, but the information collected for these tests is subject to interpretation – and in a dispute between an organization and the tax authorities, the authorities’ view often prevails.

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The days of an organization being able to offload the risk of misclassification entirely on a third party just doesn’t cut it anymore. Increasingly, tax authorities are putting responsibility for misclassification on the organization benefiting from the worker’s skills.

So how do you solve this issue in a way that protects your organization while still allowing you to access the specialized skills available through contract workers?

Up next: How Can Procom Help With Classification?

Misclassification is just one of many risks.
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