Worker classification is an area of major concern for employers of all sizes. Misclassification of workers as independent contractors has labor and employment ramifications as well as employee benefits ramifications. Guidance from the Internal Revenue Service (IRS) and the Department of Labor highlight that worker classification issues are being closely scrutinized.
This article focuses on the impact of misclassification risks on employer qualified retirement plans and health and welfare plans. These misclassification issues are in addition to other employment and tax issues that arise, including, but not limited to, back pay (e.g., minimum wage and overtime pay), failure to withhold and underpayment of Federal and state/local income and employment taxes, and failure to provide proper wage statements, such as Forms W-2.
Under common law rules, anyone who performs services for an employer is generally its employee if the employer has the right to control what that service provider does and how they do it. This is so even when the employer gives the worker freedom of action. What matters is that the employer has the right to control the details of how the services are performed.
If an employer-employee relationship exists, it makes no difference how it is labeled by the employer. The substance of the relationship, not the label, governs the worker’s status. It does not matter whether the individual is employed full time or part time.
If an employer...
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