Global HR Tools

Avoid employee misclassification risk

Governments are tightening regulations on employment misclassification, enforcing penalties that pose a significant risk to your business. You must understand these risks and proactively ensure your business maintains a strong legal reputation in all countries where you have workers.

What's your employee misclassification risk?

Use our free employee misclassification risk calculator to find out your risk level – and what you can do to fix it. No personal or financial information is required, and this information won’t be shared.


What is the duration of the contractor’s engagement with your company?


Can the contractor choose their own work hours?


Does the contractor have full autonomy over how they accomplish a task?


Are you applying the same pay rate (for similar services) to contractors as you do to your employees?


Do you provide the contractor with benefits (such as health insurance, paid time off or remuneration for professional liability or other insurances)?


Does the contractor have access to the company’s internal systems in the same way as employees?


Does the company provide equipment to the contractor for their work?


Is the contractor allowed to delegate their work to subcontractors or their own employees without obtaining prior approval?


Does the contractor supervise employees or other independent contractors? For example, reviewing their work or managing their performance.


Does the contractor work with other companies as a contractor in addition to your company?


If the contractor receives feedback on their performance, are they treated the same way as your employees? For example, put on a performance improvement plan?


Does the contractor attend employee-only company events?


Does the contractor manage their own professional liability and other personal insurances?

More expert advice for managing contractors

Frequently Asked Questions

Misclassification occurs when a worker is mistakenly employed as an independent contractor, rather than a full-time employee. This means that workers and employers might not be paying all of the correct employment taxes due, and not receiving the correct employment rights and benefits according to local labor laws and regulations.

Contractor relationships are great for temporary roles when you need specialist skills or additional bandwidth. But contractors by definition shouldn’t be in charge of other employees or responsible for major initiatives if you intend to comply with classification regulations.

Contractors should also be able to work to their own schedule, with no set work hours, and the ability to take on other clients.

Some employers establish relationships with workers as ‘pseudo-employees'. The employer considers the worker to be a contractor, but under local legislation the worker would likely be deemed an employee.

These ‘pseudo-employees' are full-time, ongoing staff members where their work and working conditions are set by the company, but who are employed as a contractor. This relationship is an example of employee misclassification in action.

There can be serious consequences for misclassifying workers, either accidentally or on purpose.

The risks can include heavy penalties and fines, plus back taxes. You may also be responsible for compensating workers deemed misclassified by paying them for lost wages and any benefits they missed out on.

Misclassification can also create opportunities for legal issues to arise, from workers, unions, or other groups harmed by incorrect designations.

In the United States, the IRS says that “anyone who performs services for you is your employee if you can control what will be done and how it will be done.

This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.”

But the rules vary across different countries, and they are always changing.

However, there are a number of indicators that can be used to evaluate your independent contractor misclassification risk.

In the UK, Uber was forced to reclassify its drivers from contractors to another classification, ‘worker’. This highly-publicized case took five years to go through the legal process.

After a 10 year court case, Swift Transportation, a US-based trucking company, paid out over $100 million in damages to 20,000 workers who were misclassified.

Various other cases have been raised around the world in recent years. These types of misclassification cases can create negative perception issues: workers may quit or leave, potential employees may view your company unfavorably, and your customers may rethink their relationships.

While you may not be affected by contractor misclassification rules today, it’s still important to know the risk and act proactively to ensure your business is in good legal standing in every country you have workers around the world.

The content on this page is not intended to serve as legal or professional advice, and it should not be construed as such. We recommend seeking legal or professional advice before making any business decisions or relying on the information presented here. We reserve the right to modify, update, or discontinue the information on this page without prior notice. It is your responsibility to check for updates and changes to ensure you have the most current and accurate information.