To start and grow their businesses, small business owners must wear many hats and become pseudo-experts in marketing, sales, accounting, tax planning and human resources matters. Given the varied and complex nature of each one of these business principles, it’s no wonder that many small business owners make mistakes that, if not corrected, can end up costing them dearly.
Earlier this month, the shipping and delivery giant FedEx agreed to settle what’s being called a landmark employment and tax case. At issue was whether FedEx erred when the company classified delivery drivers as independent contractors rather than employees. While the company maintains it committed no labor law violations, its decision to settle the case for $228 million speaks volumes and serves as a wake-up call for all U.S. employers—big and small.
For an employer, classifying a worker as an independent contractor is a much more attractive and much less costly option than to classify a worker as an employee. Employers aren’t required to pay payroll taxes on independent contractors or provide these workers with health, retirement or time-off benefits. Additionally, while employees are protected under federal wage protection and anti-discrimination laws, these protections don’t extend to independent contractors.