What happens if an employee is misclassified as an independent contractor?

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.

Why is misclassification of workers as independent contractors problematic?

Misclassified employees lose workplace protections, including the right to join a union; face an increased tax burden; receive no overtime pay; and are often ineligible for unemployment insurance and disability compensation.

What is the most expensive result of misclassifying employees as independent contractors?

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.

Why is employee misclassification a threat to workers?

Risky business. The risks of worker misclassification are considerable, as companies are subject to fines and back taxes. In addition, companies can also be liable for all federal income tax not withheld, all Social Security taxes not withheld and unemployment tax insurance of 6.2 percent.

What specific benefits would an employer gain by such misclassification?

Employee misclassification is the practice of labeling workers as independent contractors, rather than employees. The practice allows employers to avoid paying unemployment and other taxes on workers, and from covering them on workers compensation and unemployment insurance.

What are the consequences of misclassifying an employee as an independent contractor?

Misclassifying employees as independent contractors can free employers from their legal responsibilities to their workers, such as providing a minimum wage, and abiding by hour laws, because employment and labor laws are based on traditional employee-employer relationships. [12]

What are the differences between an employee and an independent contractor?

The reason is simple: Employees are entitled to many rights and benefits that are not available to independent contractors. If you are improperly classified as an independent contractor rather than an employee, you may be missing out on overtime pay, health benefits, tax payments, and more.

Does FedEx misclassify drivers as independent contractors?

Misclassification in the FedEx Business Model—a Case Study: Estimates suggest that FedEx cuts its labor costs by as much as 40 percent by misclassifying drivers as independent contractors.

Are You facing a misclassification lawsuit over your employment status?

Today, lawsuits abound over misclassification of workers. Many of these claims are coming out of the gig economy, brought by freelancers, delivery people, drivers, and more. The reason is simple: Employees are entitled to many rights and benefits that are not available to independent contractors.