Focus on Misclassification – Are Your Workers “Employees” or “Independent Contractors?”

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Many employers use independent contractors to supplement their regular employee workforces, but not all of them properly distinguish between “employees” and “independent contractors.” Out of concern for the rights of misclassified workers, and in the interest of boosting their own tax revenues, federal and state governments are increasing their efforts to identify and correct independent contractor misclassifications. Congress and the agencies are considering new laws, issuing new mandates, and allocating funds to increase government enforcement efforts against employers who have misclassified workers as independent contractors. The consequences for violators can be significant.

Scope of Misclassification Errors

Companies who misclassify workers as independent contractors may be subject to significant federal, state and local tax liabilities (plus interest and penalties). Companies may face additional reporting and withholding obligations and potential liability for back wages, overtime pay, and unpaid unemployment benefits. Reclassification can also raise administratively complex issues when an individual’s reclassification results in eligibility for retirement and/or health benefits. Every company and organization using independent contractors should perform an audit of its workforce classification process to ensure compliance with applicable federal and state laws and regulations. Performing this check-up now will minimize liability for any retroactive or additional penalties that may be assessed as part of the government enforcement initiatives that are now underway.

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Published In: Administrative Agency Updates, Labor & Employment Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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