If you outsource labor from independent contractors, you need to be careful not to misclassify your workers. Otherwise, you may have run-ins with the law, and your business may have to pay legal and financial penalties.
Misclassifying workers happens when you treat a worker as an independent contractor instead of an employee. It is against the law across all states. When you misclassify a worker, the government loses out on taxes while the employee misses out on their benefits and protections under the law. Your business could be held accountable by both parties.
The financial implications of misclassifying workers
Financially, your business might bleed. You could face class action lawsuits from affected employees where you may be ordered to pay missed wages and other employee benefits owed to the misclassified workers.
The IRS could also come calling since employers are supposed to pay income tax and other statutory payments on behalf of their employees. If you misclassify employees as independent contractors, your business may owe the taxman back taxes, which can come with other financial penalties.
Ignorance is no defense
While some employers deliberately misclassify workers to save on costs, others unintentionally break the law because they are unaware of how independent contractors differ from employees. Assumptions are commonplace, and it’s perhaps why millions of workers across the country are misclassified.
However, misinformation is inexcusable in the eyes of the law, and your business may have to face the music whether or not you knew about it.
Safeguarding your business
It is necessary to reach out for legal guidance if you are uncertain about what you need to do to ensure compliance with the law when classifying your workers. It could save your business potential losses and legal consequences of misclassifying workers.