HRM 5473 Module 2 Worker Classification Analysis Example

Coaches, Tutors and a Three-Year IT Contractor: Classifying Workers at a Chicago Charter Network

Student Name

American College of Education

HRM5473: Employment Law

Module 2 Assignment

Instructor Name

January 17, 2028

Introduction

The compliance audit in Module 1 focused on employees. This paper turns to people the Lakefront Charter Network, the composite four-school Chicago network where I direct human resources, does not treat as employees at all. Last year the network paid 38 individuals as independent contractors, issuing them tax forms for nonemployee compensation rather than putting them on payroll. Misclassifying an employee as a contractor can mean unpaid taxes, overtime and unemployment contributions, as well as lost benefits for the worker. This paper explains the legal tests, applies them to five groups of workers, estimates the consequences and recommends which arrangements should change.

Why Classification Matters

Classification decides who receives the protections of employment law. Kalleberg (2000), reviewing research on part-time, temporary and contract work, described how such nonstandard arrangements grew as employers sought flexibility and lower costs, and how workers in them often lack benefits, job security and the protections that come with employee status. For the network, contractor arrangements began as a convenience when the first school needed a coach or a tutor quickly. As the network grew, the convenience became a pattern, and some arrangements now look much more like ordinary jobs than like independent businesses.

Three Legal Tests

No single test governs every purpose. For federal employment taxes, the Internal Revenue Service applies common-law rules grouped into behavioral control, such as instructions and training; financial control, such as investment, unreimbursed expenses, the chance of profit or loss and whether the worker offers services to the market; and the type of relationship, such as benefits, permanence and whether the work is a key part of the business (Internal Revenue Service [IRS], 2026). For minimum wage and overtime, federal law looks at economic reality: whether the worker is in business for themselves or economically dependent on the employer. And for Illinois unemployment insurance, the stricter ABC test presumes employment unless the employer proves all three prongs (Unemployment Insurance Act, 2025).

The Illinois ABC Test

Because it is the strictest, the ABC test deserves detail. Under Illinois's unemployment insurance law, services are treated as employment unless the employer shows that the worker is free from control or direction in performing the work, both under contract and in fact; that the service is outside the usual course of the employer's business or performed outside all its places of business; and that the person runs an independent trade or business of the same kind on a regular basis. Failing any one prong makes the worker an employee for unemployment insurance purposes. For a school network, the second prong is especially hard to meet for anyone who teaches, coaches or supports students on school premises.

Group One: The IT Technician

For three years, one technician has worked about 40 hours a week supporting the network's computers and wireless systems, at network offices, using network equipment, with hours and priorities set by the operations director. The technician has no other clients, no business entity and no investment beyond a personal laptop. Under the IRS rules, behavioral and financial control both point to employment, and the relationship is permanent. Under economic reality, the technician depends on the network for a living. Under the ABC test, the work is controlled and performed on school premises. All three tests point the same way: this is an employee.

Groups Two and Three: Coaches and Tutors

The network pays 22 athletic coaches seasonal stipends as contractors. Coaches follow schedules set by the athletic director, use school facilities and equipment, must follow network conduct policies and are evaluated by the principal. Nine after-school tutors, five of whom are also network employees during the day, work fixed afternoon hours with students assigned by the school, using its curriculum. For both groups, behavioral control is strong, the work is part of the network's educational program and is performed at its schools, and few of these workers operate independent businesses. The ABC test is plainly failed, and the IRS and economic reality analyses also point toward employment. Tutors who are already employees are especially clear cases, since paying the same person both ways for similar work is hard to defend.

Groups Four and Five: The Therapist and the Designer

Two arrangements stand on firmer ground. A speech-language pathologist provides services through a staffing agency that employs the therapist, sets pay, withholds taxes and carries insurance; the network contracts with the agency, not the individual. Here the question is not whether the therapist is an employee, but whose, and the agency arrangement appears legitimate, though the contract should confirm the agency's responsibilities. A freelance graphic designer who produced the network's annual report works from a private studio, serves many clients, sets fees by project and controls the methods. The designer meets the IRS and economic reality tests for independence and likely the ABC test, since design is outside the network's usual business.

Consequences of Misclassification

If the 32 workers in the first three groups are employees, the network faces exposure on several fronts: unpaid payroll taxes owed by the network as employer, with possible federal penalties; Illinois unemployment insurance contributions; overtime for the IT technician, who sometimes worked beyond 40 hours; and possible claims to benefits such as paid leave under the Chicago ordinance. The IRS offers a Voluntary Classification Settlement Program that allows eligible employers to reclassify workers going forward and pay a reduced amount for past federal employment taxes. The network should consider it with counsel before reclassifying.

Talking With the Workers

Reclassification affects people, not just tax forms, so it must be explained carefully. Some coaches may prefer contractor status because no taxes are withheld from their stipends, and they need to understand that withholding does not change what they owe, while employee status adds unemployment coverage, workers' compensation and possibly paid leave. The IT technician gains health benefits and overtime eligibility. HR will meet each affected group, explain the change in plain terms and answer questions individually, and will make clear that reclassification is a correction by the network, not a sign that anyone did something wrong. Because the network cannot ask workers to waive rights they hold as employees, no one will be offered a choice to remain a contractor in a role that the tests show is employment.

Recommendations

I recommend reclassifying the IT technician as a full-time employee with benefits beginning next pay period, and placing coaches and tutors on payroll as part-time employees for the next season, with stipends paid through payroll and tutoring hours recorded. Tutors who are already employees will have their tutoring time added to their regular pay, at overtime rates where hours exceed 40 for nonexempt staff. The agency contract for the therapist should be reviewed to confirm that the agency is the employer, and the designer can remain a contractor under a written agreement. Going forward, HR will review any proposed contractor arrangement against all three tests before work begins.

Conclusion

Applying the IRS common-law rules, the federal economic reality approach and the Illinois ABC test to five groups shows that most of the network's contractors are employees in law and in fact. Only the agency-placed therapist and the freelance designer fit outside employment. Reclassifying the others, with counsel's advice on past liability, will reduce legal risk and extend to these workers the protections their work deserves.

References

Internal Revenue Service. (2026). Publication 15-A: Employer's supplemental tax guide. https://www.irs.gov/publications/p15a

Kalleberg, A. L. (2000). Nonstandard employment relations: Part-time, temporary and contract work. Annual Review of Sociology, 26, 341-365. https://doi.org/10.1146/annurev.soc.26.1.341

Unemployment Insurance Act, 820 ILCS 405/212 (2025).