TL;DR
Restaurant staff hiring mistakes can lead to costly misclassifications, with the IRS stating that an employee is not an independent contractor if an employer-employee relationship exists. The IRS considers factors such as the right to terminate and the supplying of tools and/or equipment to determine the existence of an employer-employee relationship.
FLSA requires that each employee receives a classification upon hiring. And while it may seem like a simple step, the classification options can be confusing.
One of the most common mistakes is classifying employees as independent contractors when they’re not.
The IRS states that if “an employer-employee relationship exists (regardless of what the relationship is called)” then the employee is not an independent contractor. Whether or not such a relationship is considered “employer-employee” depends upon the culmination of a number of factors as well as the individual circumstances of the situation.
Such factors may include:
the right to terminate the individual
the supplying of tools and/or equipment
the belief of the parties as to the existence of an employer-employee relationship
Many restaurant owners hire independent contractors, and they shouldn’t. When this is done wrong, as I have seen time and time again, it can cause lots of financial, legal, and cultural trouble.
Please note, this is not legal advice. Reach out to your legal counsel or internal HR team for guidance before taking action.
In this story
This story was originally published in 1851 Franchise on November 15, 2022. Burnaze summarizes and links to the original reporting.
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