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 The Perils of Converting Employees to Independent Contractors

Posted on November 27th, 2021

Business Lawyer Montana

An independent contractor is a self-employed person who charges fees to provide services for a company while remaining a separate entity. An employee is someone whom an employer hires to work for the company, dictating when and how the employee must do his or her job. Employees have rights and benefits that independent contractors cannot claim.

There may be a legitimate reason to convert an employee to an independent contractor. Sometimes there is a genuine change to the relationship that a company has with an employee. However, it is not something that you should do casually because there can be significant consequences.

It Can Cost You More Than You Think

Many people want to convert employees to independent contractors in the interest of saving money. Perhaps you need to downsize but you want to keep your employees in similar roles. Reclassification may seem like a way to save money while maintaining your workforce.

However, you can’t just suddenly declare someone an independent contractor. If it was someone you initially hired as an employee, and the employment wasn’t understood to be temporary in the first place, you first need to terminate him or her. The former employee may now be eligible for unemployment compensation, and you may have to pay out accrued vacation time or unused sick days. These can all add up, especially if the employee worked with you for some time.

It May Trigger an Audit

To convert someone from an employee to an independent contractor is to provide them with two different tax forms. Independent contractors receive 1099 forms from the companies they work for, while employees receive W-2s. If you report one of each document for the same person during the same tax year, the IRS may suspect something inappropriate is going on and conduct an audit. During the audit, you must provide a good reason for reclassifying the employee.

It May Be Considered Misclassification

The difference between employees and independent contractors isn’t just in how you pay them or what you call them. The government recognizes a series of characteristics that belong to employees and another that distinguish independent contractors. If your independent contractors have characteristics of employees, e.g., you get to decide when and where they work, federal agencies may not believe that they are independent contractors. Instead, they may be considered misclassified employees. That can mean serious consequences for you because it may look like you are trying to defraud the government.

If you have a legitimate reason to reclassify employees as independent contractors, contact a business lawyer in Montana, like the Silverman Law Office, PLLC, for the sake of everyone involved with your business. 

Navigating The Complexities Of Business Law 

In the dynamic world of business, legal challenges and opportunities are ever-present. Understanding the intricate details of business law requires the expertise of a skilled lawyer who specializes in this area. These legal professionals play a crucial role in guiding businesses through the maze of regulations, contracts, and corporate governance, ensuring that companies not only comply with the law but also optimize their operations and protect their interests. If you are a businessperson, you need to reach out to a Montana business lawyer to go over all of your potential needs. No matter how big or small your business is, you want to protect what is rightfully yours. Reach out to Silverman Law Office, PLLC today to set up a consultation and see how we can help you.

Experience In Contractual Affairs

One of the fundamental roles of a business lawyer is in the realm of contracts. From the initial stages of drafting and negotiating to the final execution, these legal experts ensure that all agreements are watertight and serve the best interests of the business. They have the acumen to foresee potential pitfalls in contract terms and provide solutions that prevent future disputes. Their meticulous attention to detail in contract review is invaluable in safeguarding a business’s rights and obligations. Contacts are involved in many different business transactions, so it is crucial to ensure you know what you are doing and do not sign anything that could potentially hurt your business in the long run.

Navigating Corporate Structure And Compliance

Another critical area of focus is advising on the appropriate corporate structure for a business. Whether it’s a startup choosing its initial form or an established company contemplating restructuring, a business lawyer provides tailored advice considering the specific needs and goals of the business. They also play an instrumental role in ensuring compliance with various corporate laws and regulations, which can be a labyrinthine task for any business. This proactive approach in compliance management helps businesses avoid legal pitfalls and maintain a strong reputation in their industry.

Intellectual Property Protection

In today’s digital age, protecting intellectual property (IP) is more crucial than ever. Business lawyers specialize in securing a company’s intellectual assets, including trademarks, patents, copyrights, and trade secrets. They assist in filing and defending IP rights, ensuring that a business’s innovations and creative works are legally protected against infringement. This not only safeguards a company’s assets but also strengthens its competitive position in the market.

Litigation And Dispute Resolution

Disputes are an inevitable aspect of the business world. A Montana business lawyer will be adept at representing companies in legal disputes, whether it involves litigation, arbitration, or mediation. They strive to resolve conflicts in the most efficient and effective manner, keeping the best interests of the business in mind. Their expertise in negotiating settlements and navigating the courtroom can be invaluable in preserving a business’s resources and reputation.

Transactional And Mergers And Acquisitions 

Finally, for businesses involved in mergers, acquisitions, or other significant transactions, the guidance of a business lawyer is indispensable. They provide strategic advice during negotiations, help with due diligence processes, and ensure that transactions comply with legal requirements. This support is vital in ensuring that such complex transactions proceed smoothly and successfully.

Ensuring Your Business’s Legal Health

Legal challenges in business can arise unexpectedly and require prompt, knowledgeable responses. A Montana business lawyer not only addresses current legal issues but also anticipates future challenges, ensuring that your business remains on a solid legal footing. Their expertise is a crucial asset in navigating the legal landscape, protecting your interests, and driving your business forward.

Contact Us Today

If you’re looking for legal guidance to steer your business through its legal journey, consider reaching out to a professional with the experience and dedication you need. Their support can be the difference in transforming legal challenges into opportunities for growth and success. Connect with a trusted business lawyer from Silverman Law Office, PLLC today to ensure your business is not only compliant but also primed for prosperity.


Fill out the form below to get in touch with our legal team or call Bozeman office at (406) 582-8822 or our Helena office at (406) 449-4829 to talk to someone right away.

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