What are the consequences of misclassifying an employees as independent contractors?

The consequences of misclassification can be grave. Besides owing back taxes to the feds, the business will also owe state unemployment taxes and unpaid worker’s compensation premiums, and may owe unpaid overtime or minimum wages, medical expenses and unpaid vacation and sick pay.

What is the penalty for misclassifying employees?

between $5,000 and $15,000 per
The California Misclassification Penalty The penalty can range between $5,000 and $15,000 per violation – and if an employer has been proven to engage in a pattern of willful misclassification, the courts can fine them an additional $10,000 to $25,000.

Can an independent contractor sue for misclassification?

California Labor Code §226.8 makes it illegal to misclassify an employee as an independent contractor intentionally or willfully. If you believe your employer has intentionally classified you as an independent contractor, you can file a wage and hour lawsuit.

Can I sue for employee misclassification?

Many employers misclassify workers to avoid giving them California overtime pay and minimum wage. But their workers can file a lawsuit for misclassification and can recover penalties as high as $25,000 per worker.

How do you know if you have been misclassified as an independent contractor?

Contractors typically use their own work equipment such as laptops and cell phones. If the company issues their own computer or cell phone or if you have a company email address or business card, those may all be telltale signs that you are being misclassified as a contractor.

What happens if an employee is misclassified as exempt?

Misclassifying employees as exempt from overtime can result in back overtime, fines, and damages. Before classifying employees as exempt, make sure they satisfy applicable federal and state tests. When in doubt, it is best to err on the side of caution and classify employees as non-exempt.

What is the difference between an independent contractor and an employee?

Key takeaway: Independent contractors are not employed by the company they contract with; they are independent as long as they provide the service or product agreed to. Employees are longer-term, on the company’s payroll, and generally not hired for one specific project.

How many employees are misclassified as independent contractors?

Confirming the findings of earlier national studies, these state reports show that 10 to 30 percent of employers (or more) misclassify their employees as independent contractors, which indicates that several million workers nationally may be misclassified.

How do I report an employer for misclassification of employees?

If employee misclassification is causing tax fraud, workers can anonymously report their employers to the IRS by filing Form 3949-A. If workers would like the IRS to make a determination about their worker status, they can file the non-anonymous Form SS-8.

How do I know if I’ve been misclassified as an independent contractor?

Why are employees misclassified as exempt?

To avoid paying this extra money, companies sometimes give their workers “inflated” job titles or just put them on a salary and claim they are exempt from receiving overtime under federal law. This tactic, known as “employee misclassification,” is not only unethical, it is illegal.

What are the 8 categories of exempt employees?

Requirements differ from state to state, but the FLSA (Fair Labor Standards Act) classifies exempt employees as anyone doing jobs that fall into these categories: professional, administrative, executive, outside sales, STEM (Science, Technology, Engineering, and Math)-related, and computer-related.

What happens if an employee is not classified as an independent contractor?

Failing to properly classify an individual as an independent contractor may result in expensive penalties to the employer. As it pertains to the IRS, if an employer-employee relationship exists, the earnings of the employee are subject to FICA (Social Security and Medicare) and income tax withholding.

What are the penalties for misclassifying as an employee?

Criminal penalties of up to $1,000 per misclassified worker and one year in prison can be imposed as well. In addition, the person responsible for withholding taxes could also be held personally liable for any uncollected tax. Criminal penalties of up to $1,000 per misclassified worker and one year in prison can be imposed as well.

How do I file a claim for misclassification as an independent contractor?

One way is when a worker who believes they have been misclassified as an independent contractor files a complaint with either their state Department of Labor or with the U.S. Department of Labor (DOL).

What are the penalties for not complying with Form I-9?

It does not end there, however. Other agencies, such as the U.S. Department of Homeland Security (DHS), may impose additional penalties in the amount of $1,000 for an employer’s failure to comply with Form I-9 requirements. These penalties may readily relate to several years of past noncompliance.