Ask the Experts: How Do I Avoid Independent Contractor Misclassification?

By: Hannah Morgan Smith | Fahey Schultz Burzych Rhodes PLC

Restaurants, bars, hotels, and other hospitality businesses often rely on flexible staffing models to meet seasonal demand or bring in specialty services. From IT support and maintenance vendors to photographers and musicians, independent contractors can play a vital role in your business operations. However, misclassifying workers as independent contractors when they should be treated as employees is a common and costly issue.

Why Classification Matters
Under Michigan and federal law, worker classification does not depend on job titles or contract language. Instead, agencies and courts look at how the relationship functions in practice. Misclassification can result in liability for unpaid wages and overtime, back taxes, unemployment contributions, workers’ compensation exposure, and civil penalties.

How Michigan Evaluates Worker Status
For wage and hour purposes, Michigan courts apply the “economic reality test,” which focuses on practical factors such as who controls how the work is performed, how the worker is paid, whether the business can discipline or terminate the worker, and whether the work is a core part of the business. In the hospitality industry, workers performing essential functions, such as cooking, serving guests, housekeeping, or front desk services, are especially likely to be classified as employees, even if paid per shift or per event.
Other state agencies apply different but related standards. For unemployment insurance and workers’ compensation purposes, Michigan relies heavily on the IRS’s 20-factor test, which examines behavioral control, financial control, and the overall nature of the relationship. Setting schedules, providing uniforms or tools, reimbursing expenses, or paying workers hourly often points toward employee status.

For Example
A classic example of a true independent contractor is a painter hired to repaint a restaurant’s exterior. The painter brings tools and materials, controls how and when the work is done, completes a defined project, invoices for the job, and performs work that is not part of the restaurant’s daily operations. A banquet server who works regular events under the business’s direction is far more likely to be an employee.

Practical Takeaways
​To reduce risk, employers should ensure that independent contractors operate separate businesses, supply their tools, control how their work is performed, invoice for completed projects, and remain free to work for other clients.
Worker classification is fact-specific, and mistakes can be expensive. When questions arise, hospitality businesses should consult a legal expert before engaging independent contractors.
 

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