Misclassifying Your Independent Contractors

Do Not Misclassifying Your Independent Contractors When You Hire Workers! This Can Cost Your Business! Speak With A Lawyer!

Many Business Owners Hire Workers For Their Business

Many business owners must hire workers to perform activities. Misclassifying employees as independent contractors is a serious issue that could cost your company money. As a business owner, you must know the penalties you need to avoid.

Do You Know What Is The Legal Significance Between Employees & Independent Contractors?

Do not misclassify workers as independent contractors when in fact they’re employees. You can be penalized. Business owners are more protected from liability & do not have as many legal responsibilities when hiring a contractor as opposed to an employee, i.e. the business owner is responsible for withholding taxes for its employees & must provide minimum working requirements like breaks, sick time, vacations, & health benefits. There are different tests for determining if a worker is considered an employee. Generally, it has to do with “control”. If the hiring party controls the means and the mode of work, most likely the worker is an employee.

The classification of workers is an important legal issue. Work with an attorney so you do not face legal penalties.

Legal Penalties For Misclassification Of Workers

If the misclassification was unintentional, the employer faces at least the following penalties, based on the fact that all payments to misclassified independent contractors have been reclassified as wages:

  • $50 for each Form W-2 that the employer failed to file because of classifying workers as an independent contractor.

  • Since the employer failed to withhold income taxes, it faces penalties of 1.5% of the wages, plus 40% of the FICA taxes (Social Security and Medicare) that were not withheld from the employee and 100% of the matching FICA taxes the employer should have paid. Interest is also accrued on these penalties daily from the date they should have been deposited.

  • A Failure to Pay Taxes penalty equal to 0.5% of the unpaid tax liability for each month up to 25% of the total tax liability.

If the IRS suspects fraud or intentional misconduct, it can impose additional fines and penalties. For instance, the employer could be subjected to penalties that include 20% of all of the wages paid, plus 100% of the FICA taxes, both the employee’s and the employer’s share.

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.

Schedule Your Consultation Now With A Business Lawyer!