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Employee misclassification can cost you a lot

On Behalf of | Apr 18, 2022 | Firm News

As an employer, you may think that some of your workers are independent contractors, but legally, they are considered employees. As a result, you could find yourself in serious trouble with the law and the IRS. Here is how it happens.

When you misclassify an employee as an independent contractor, it means that you are not withholding income tax or paying them the required minimum and overtime wages. Both the employee and the government lose out because of the misclassification. As a result, you could be facing action from both parties.

The penalties for misclassifying workers

You may have to pay your employee any missed wages and any employment and retirement benefits you owe. In addition, the IRS will come calling on back taxes and federal insurance contributions like Medicare and Social Security. 

Depending on the number of affected employees, it could be a large amount of money.

Protecting your business

The most sustainable way of avoiding this is by learning more about the two classes of workers and reviewing your business policy of classifying workers. In addition, consider having regular training programs for your employees in the human resource department to avoid any slip-ups. 

The law applies whether or not you are aware of the misclassification.

Understand what the law says

Workers’ classification can get complicated, given the complexities involved, and you may find yourself on the wrong side of the law despite all your efforts. 

For instance, a worker who signed an independent contractor form does not necessarily mean that they will remain so for the entire duration they work for you. Their status may change along the way.

It is advisable to seek help if you think something is not right and ensure full compliance. You could end up saving your business (and yourself) major inconveniences and legal problems.