From The National Law Review, Mariya Gonor outlines five (5) critical risks of misclassifying workers as independent contractors instead of employees. Mariya writes:
In today’s gig economy, the distinction between employee and independent contractor (including consultants and freelancers) is more important than ever. Unfortunately, misclassifying personnel as independent contractors rather than employees can lead to severe consequences for both the employer and the personnel. Here’s why:
- Legal Ramifications
Misclassification can result in violations of both federal and state labor laws. Employers may face penalties for not complying with wage and hour laws, such as failing to pay minimum wage, overtime, or provide meal and rest breaks.
- Tax Implications
Employers who misclassify their personnel avoid paying payroll taxes, which can lead to significant and unexpected tax liabilities. The IRS can impose back taxes, interest, and penalties, which can add up to substantial sums.
- Lack of Benefits for True Employees
Properly classified independent contractors are not entitled to employee benefits such as health insurance, retirement plans, paid leave, and unemployment insurance. This can leave personnel without a safety net, impacting their financial stability and overall well-being. Misclassified personnel are denied these benefits.
Read the full story at Distinguishing Between Employees and Independent Contractors
