Most commonly broken laws with contractors

Running a business is a complex thing to do, and a significant reason for the complexities is the rules and regulations that come with it. As a business owner, whether you have two employees or fifty, there are state and federal laws that you are expected to comply with. Some of these laws relate to workers or employees, and this is an area where many business owners make mistakes. Here we compile the common mistakes that businesses make.

Misclassification of Employees:

There are instances where the employees are designated as independent contractors. This mistake is a prevalent one but the consequences can be very grave too. Generally, contractors do not receive overtime wages and benefits. The business does not have to remit payroll taxes on their earnings, which would be done for an employee, thus making it more expensive to classify a worker as an employee than a contractor. However, the rule on who qualifies as an employee or contractor is in place, and trying to bypass it may lead to court cases. You will have to pay back penalties, wages, and taxes on such employees in the best scenario. It is easy to be confused about whether a worker is an employee or contractor. If that happens to you, you can use the Department of Labor independent contractor test or request IRS determination.

Misclassifying Exemption from Overtime:

This is another mistake that business owners make. Workers exempt from overtime receive the standard salary without any extra payment for working overtime. However, determining whether a worker is exempt from overtime pay is not as simple as employing only salaried workers. There are criteria an employee must meet to be exempt. Such criteria have to do with federal job duties and salary requirements. If a business mistakenly exempts a worker from overtime pay when the worker doesn’t meet those criteria, the worker can sue the company.

Subtracting Loan Payments from The Wage:

If you are running a small business, you are very likely to be familiar with the personal and financial lives of your employers, and in a situation where the employer needs a loan, they might come to you. If you give such a loan with the plan to deduct it from their paycheck, you are in the wrong. Most states’ law does not permit employers to make any deductions apart from benefits and taxes from employees’ wages. Thus, if you give your employee a loan, make them sign a promissory note as to how and when they will repay the loan separately from their payment.

Making Decisions for The Contractor:

When working with an independent contractor, you may forget the relationship between you or think of a better way to do some part of the job. As an employer, you can always direct your employee on how to do a job. However, you cannot do the same for an independent contractor, and you must not forget this when dealing with them. What makes a worker a contractor and not an employee is the right to control and make decisions that they have, and as a business owner, you must respect these rights.


As a business owner, it is crucial to be conversant with employment laws to avoid making costly avoidable mistakes.