Common Mistakes Startups Make When Hiring Employees: Part 3

Last week, we examined the second in a series of mistakes that Startups commonly make when hiring employees.  (You can read that post here).  Now we examine another mistake Startups commonly make:

Mischaracterizing Employees and Independent Contractors.

When it comes to hiring, Startups commonly confuse employees and independent contractors.  While there are several distinctions between employees and independent contractors, the two most important distinctions are: (1) while employees are subject to wage and hour laws, independent contractors are not; and (2) the hiring of employees or independent contractors has different tax consequences for your business.

It is important to note that courts in Illinois employs a multi-factor test to determine whether an individual is an employee or independent contractor.  So, while you may label an individual as one or the other, Federal and State laws dictate what constitutes the individual’s employment classification.  As you will see with next week’s post, violating wage and hour laws due to the mischaracterization of an employee as an independent contractor can have disastrous consequences for a new business.

This post is not intended to be legal or tax advice.  Formeller & Formeller LLP’s Chicago startup attorneys have helped numerous clients form and operate their businesses.  Our skilled Chicago attorneys can help counsel you with employment issues and assist you with establishing proper employment hiring and employee management procedures .  Please contact our law firm today for a free legal consultation if you would like to discuss employment or operational issues.

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