Many employers misclassify workers as independent contractors, and there are many reasons why. They want the trade-off of no duty to:
- Withhold taxes
- Pay Social Security or Medicare payroll deductions
- Provide workers’ compensation coverage
- Pay unemployment benefits
- Offer any other employee benefits
In this way, some employers believe worker misclassification is worth it because they think it saves on the labor bottom line. However, as our skilled business and institutional legal team explains, the costs of misclassification can be higher than anticipated.
The Dangers of Misclassifying Workers
The Internal Revenue Service (IRS) looks at behavior control, financial control, and the type of relationship between an employer and an independent contractor. Many employers are at risk of the detection of misclassified workers.
The IRS focuses resources on auditing employers to determine if they’re correctly classifying all workers. There can be both personal and company liability for an employer’s failure to pay withholding taxes for employees that are misclassified.
Additionally, misclassified workers are often denied access to critical benefits and protections such as family and medical leave, overtime, minimum wages, and unemployment insurance. Not only are employees cheated, but it also generates substantial losses to the U.S Treasury and the Social Security and Medicare funds, as well as state unemployment insurance and workers' compensation funds.
As Business Legal Counsel, We Can Help
An experienced business and institutional legal advisor can help businesses with worker classification whether it relates to independent contractors or part-time and full-time employees. It starts with the proper education and guideline of responsibility regarding how the IRS, the Equal Employment Opportunity Commission, the U.S. Labor Department, and federal and state agencies test for and classify the employer/worker relationship.
Your legal counsel might also recommend solutions such as audits, assessment of overtime, and wage evaluations to further reinforce proper compliance. Ultimately, fair worker practices provide the ultimate benefit in continued production and profitability. Arrange for a consultation to learn more.