"What if we don't do what you say?" That's a question I hear often enough as a Human Resources Consultant. What's tough about my answer is there's a good chance that nothing will happen and there's also a good chance that the employer will decide they don't need my services.
Although, like insurance, you are playing the odds. So the real question is, how much of a gamble are you willing to take with your money and your business?
Employee classifications have a direct impact on how you pay your workers and if they are paid properly. Both the Department of Labor and the IRS have several criteria that distinguish workers who should get paid only hourly and get overtime pay, those that are paid a salary and not eligible for overtime pay and those not paid through payroll and don't need to be considered part of your employee headcount. The trouble is, to properly classify your people's positions you need to take into account what they do, how they do it and how much they get paid to do their job. If not done correctly and you don't consider all the criteria, you can be subject to quite a bit of expensive consequences.
This is what I commonly see:
Case in Point - A business owner pays a salary to one of 4 workers performing the same job that they pay the other three by the hour, lets call her Nancy. This decision was made by the business owner because Nancy works much slower and always needs to work additional hours to get the job done. Nancy finds out that everyone she works with got paid overtime for working additional hours which she works all the time. Thing is, Nancy thinks she is an exceptional worker that works harder and longer than any of the others. Even if the quality of her work is not up to the same standards as the others, trust me she thinks she is better. Now she's upset, brings it home and is encouraged to fight because she always works such long hours. Complaint filed. Cha ching! now you are paying legal fees, which will lead to DOL fines, back pay and back taxes. Nancy can claim that this was going on for years - unless you have time tracking records to verify what hours she actually did work, she can say anything and the courts use her information because you don't have any to dispute her records. Oh yeah, one more thing - you are now on the radar and probably be investigated for all of the employees and years they worked for you, so more fees, fines and penalties. Fabulous stream of income for lawyers, Dept. of Labor and the IRS.
Second Case in Point - This situation is probably more common than the first. Employer has an immediate need to fill and finds someone to work and not putting them on payroll, pays them by company check as a "1099" . Agreement made by a hand shake or these people have a previous relationship or know the same person that put them together. All is well and this can go on for years. At some point either one of you may decide this is not working, relationship ends and everyone goes their separate ways. Even if the relationship didn't end contentiously, the departing worker will miss the income and may file for unemployment. Not a problem you think, since they were never an employee. But you would be wrong. They will file and the Division of Unemployment will award them the benefit because they can prove you paid them. But...oops, they weren't on your records so now your company is flagged and with more and more employer regulatory agencies being digitally connected, slowly but surely you will be investigated, fined and responsible for penalties, back taxes and yes, let's not forget the lawyer fees.
Don't think because you hire friends they won't turn against you or that that person is too scared, stupid or otherwise to do anything. You don't know who they know or what they will do if pissed off enough, feel betrayed or even jealous that you, the rich business owner (even if you are not rich, they think you are) got rich off their back.
Go ahead, it's your company, do what you want. You don't have to listen to me.