Contractor or Employee? Don’t Get Burned by Misclassification

For startups, the line between employees and independent contractors can sometimes feel blurred. You may bring someone on for a project, give them a company email address, and involve them in daily operations—without realizing you’ve crossed into employee territory. But misclassifying workers isn’t just a technical error; it can lead to audits, back taxes, penalties, and even lawsuits.

At Rann Law, we help startups and small businesses navigate worker classification laws so they can hire confidently, stay compliant, and protect their intellectual property.

Why Worker Classification Matters

The way you classify a worker determines your legal obligations around taxes, benefits, and workplace protections. Misclassification can result in owing back wages, unpaid overtime, and significant fines. In some cases, contractors can retroactively claim employee rights, putting your business at financial and legal risk. Without clear agreements, you may even lose ownership of the work they create.

Key Legal Differences Between Employees and Contractors

The primary distinction lies in the level of control you have. Employees typically follow a set schedule, use company-provided tools, and work under direct supervision. Employers must withhold taxes, provide benefits (where required), and comply with labor protections. Contractors, on the other hand, set their own schedules, use their own tools, and operate independently—though they still need contracts that specify IP ownership and deliverables.

What Can Go Wrong with Misclassification

Misclassifying a worker can trigger investigations from the labor board or the IRS. You could be required to pay back taxes, penalties, and retroactive benefits. Worse, without proper contracts, a contractor might claim ownership of intellectual property they created while working for you—forcing you into costly disputes or rebranding.

How Rann Law Protects Your Business

At Rann Law, we assess your worker relationships, advise on correct classifications, and draft agreements that protect both your business and your IP. We also update contracts as roles evolve, ensuring you remain compliant and audit-proof as your team grows.

Pro Tip

If it walks like an employee, talks like an employee, and works like an employee—treat it like one. And if you’re unsure, get legal help before it becomes a costly mistake.

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In Summary:

• Misclassification can trigger audits, back taxes, and penalties.
• The difference lies in control, benefits, and tax obligations.
• Without clear contracts, you may lose IP ownership to contractors.
• Rann Law evaluates roles, drafts agreements, and keeps your hiring practices compliant.