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Tax Blog

What You Need to Know About Employee [Mis]Classification

In Illinois, discerning whether an individual is an employee or an independent contractor carries significant implications for legal rights, benefits, and tax obligations. Let's delve into the distinction between the two and why it matters.


What's the Difference?

Employees typically operate under the direction of an employer, receive regular paychecks and benefits, and utilize company-provided equipment. On the flip side, independent contractors enjoy greater autonomy in how they execute their work, are compensated per project or task, and typically utilize their tools and resources.

The Department of Labor recently finalized the economic realities test to determine whether a worker should be classified as an independent contractor or an employee. The test uses six metrics to analyze that relationship:

1.    Opportunity for profit or loss depending on managerial skill,

2.    Investments by the worker and the employer,

3.    Permanence of the work relationship,

4.    Nature and degree of control,

5.    Whether the work performed is integral to the employer’s business, and

6.    Skill and initiative.


Why Does it Matter?

Misclassifying workers can result in major penalties for employers and leave workers without entitled benefits. Some of the penalties can include paying back wages, fines, back taxes, interest, and legal fees.


What Can You Do?

Employers should conduct thorough reviews of their worker relationships, seek legal counsel if uncertain, and ensure adherence to relevant laws and regulations. Workers, on the other hand, should familiarize themselves with their rights, ask clarifying questions when unsure, and advocate for fair treatment in the workplace.



Accurately classifying workers as employees or independent contractors is paramount in Illinois to uphold fairness and legal compliance. By grasping the nuances of classification and abiding by legal guidelines, both employers and workers can navigate this aspect of employment confidently and equitably. For more information, please contact the professionals at The Center for Financial, Legal, & Tax Planning, Inc., at (618) 997-3436.



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