Alex What happens if you misclassify an employee as an independent contractor?
The penalties can add up pretty quick. According to netPolarity “ Misclassifying employees as independent contractors and failing to provide W-2 forms can subject an employer to back taxes of as much as 41.5%* of the contractors’ wages, according to the IRS. And these penalties can go back for three years .”
How does employee misclassification affect the federal government?
Employee misclassification generates substantial losses to the federal government and state governments in the form of lower tax revenues, as well as to state unemployment insurance and workers’ compensation funds. Am I an Employee?: Employment Relationship Under the Fair Labor Standards Act (FLSA) (Fact Sheet #13)
What’s the difference between an employee and an independent contractor?
Essentially, independent contractors treat their employers more like customers or clients, often have multiple clients, and are self-employed. For some professionals, the line between employee and self-employed independent contractor is often blurred, and employers can classify workers as either.
Do you know the penalties for improperly classifying?
The penalties can add up pretty quick. According to netPolarity “ Misclassifying employees as independent contractors and failing to provide W-2 forms can subject an employer to back taxes of as much as 41.5%* of the contractors’ wages, according to the IRS.
How to avoid employee misclassification?
- Engage a Professional Employer Organization (PEO) A PEO employs workers who then work exclusively for a client business.
- Ensure Employment Contracts are Professionally Drafted.
- Develop a Company-Wide Contracting Policy.
Can I classify my employee as a contractor?
The safest bet would be to classify and pay this worker entirely as an employee for all the tasks they perform. However, if the employee has an established outside business, and the contracted work doesn’t pertain to this employee’s duties, then you may treat the employee as an independent contractor for that specific work.
Can you sue an employer for employment misclassification?
When a worker is misclassified as an independent contractor and that worker works more than 40 hours per week, that worker may be eligible to file a lawsuit against the employer seeking unpaid overtime and other damages. Employers misclassify for a wide range of reasons.
How to prevent independent contractor misclassification?
- employers need to make a distinction between employees and independent contractors.
- Determining Who Is an Independent Contractor.
- Independent Contractor Misclassification.
- Taking Necessary Steps to Avoid Penalties.