Closing the risk gap: Preventing misclassification in North American EOR programs

Introduction: The rising cost of getting classification wrong 

Worker misclassification—labeling an employee as an independent contractor—is no longer a niche risk. 
In 2024 alone, U.S. and Canadian regulators collected hundreds of millions in back pay and penalties for misclassified workers (U.S. Department of Labor, CRA data). 

As hybrid models blur lines between employee and contractor, enterprise compliance frameworks must evolve. 
An Employer of Record (EOR) with strong local expertise can help close this “risk gap” if renewal cycles are used to test for compliance rigor, not just pricing. 

1. Misclassification: a growing enterprise exposure 

The complexity comes from inconsistent definitions: 

• The U.S. applies the FLSA “economic realities” test; 
• Canada uses the CRA’s control and integration tests; 
• Some states and provinces have added stricter ABC criteria. 

When multinational organizations rely on outdated contractor templates or inconsistent onboarding processes, exposure multiplies. 

2. The audit equation: documentation beats defense 

During an audit, regulators look for documentation such as contracts, tax filings, and records of control, to determine if a worker is properly classified. 
A compliant EOR must maintain airtight audit trails: 

• Detailed job descriptions and control assessments 
• Signed contracts reflecting the correct relationship 
• Records of remittances and benefits contributions 

Procom’s compliance framework builds these controls into onboarding workflows, ensuring every engagement is audit-ready from day one. 

3. Technology meets legal rigor 

Automation simplifies paperwork, but classification decisions still require human judgment. 
Procom combines digital efficiency with in-house compliance counsel and jurisdiction-specific HR expertise, verifying that every engagement meets local definitions before onboarding. 

That hybrid model, technology plus expertise, is what keeps clients ahead of evolving labor laws.

4. Educating stakeholders across the enterprise 

Misclassification risk doesn’t begin with the contractor. It begins with the requisition. 
Hiring managers, HR, and procurement must understand how role design and payment structures influence classification outcomes. 

Procom partners with clients to conduct Compliance Readiness Workshops that educate teams on current regulatory frameworks and how to avoid common pitfalls. 

5. Renewals as a risk-mitigation checkpoint 

Every EOR contract renewal presents an opportunity to reassess classification criteria, documentation standards, and insurance coverage. 
A simple review can uncover outdated job categories or contracts that no longer reflect actual working relationships.

Key Takeaway 

Preventing misclassification isn’t about avoiding penalties: it’s about protecting people, processes, and performance. 
With Procom’s North American expertise and audit-ready framework, enterprises can close the risk gap confidently. 

Eliminate uncertainty from your EOR compliance program.

Talk to Procom about implementing a Classification Risk Review before your next renewal.