Discuss the Legal Implications of Improper Classification

Several government agencies are working to combat the misclassification of independent contractors. USDOL and IRS have a memorandum of understanding that is transmitted to state governments. Not all states have signed yet, but it will only be a matter of time. Currently, almost half of the States have committed themselves to the fight against misclassification. If an agency discovers that you have misclassified independent contractors, it now shares that information with other agencies. The “hard blow” resulting from misclassification could easily become a triple or quadruple blow and become a very costly mistake. Due to increased scrutiny from state and federal agencies and high-profile cases involving companies like Uber, issues of correctly classifying workers as employees and independent contractors for businesses across the country are highlighted. Employers pay taxes on employees, but not on independent contractors, so misclassification of employees can lead to tax evasion. For an employee, a company must withhold income, social security, and health insurance taxes from the employee`s wages, in addition to paying the employer`s share of Social Security and Medicare taxes, paying unemployment taxes, and offering workers` compensation insurance. If an employee is considered an independent contractor, they are responsible for paying their own income and self-employment taxes, which can result in underpayment of taxes if an employee does not understand or comply with these obligations. As if liability for misclassification under payroll and payroll and hours of payroll laws, labor tax, benefits, and workers` compensation were not enough, companies may also be required to deal with issues and claims related to harassment and discrimination lawsuits, collective bargaining, FMLA/paid vacation benefits, immigration compliance, third-party tort, and class actions.

to be discussed. Ultimately, companies need to be extremely careful when classifying their employees. If this is not done correctly, it has a significant impact on workers, employers and the economy in general. There are two types of classification conflicts in which employers and their employees can be involved. The first is whether the workers are bona fide independent contractors. The second is whether workers are bona fide exempt workers under wage and working time laws. This article briefly explores both areas. The misclassification of employees as independent contractors is a serious problem.

It is always a good idea to consult with an employment counsellor to ensure compliance with applicable laws. According to Abrahams, 4,500 lawsuits were filed under the Fair Labor Standards Act (FLSA) last year. In addition, numerous lawsuits have been filed by the U.S. Department of Labor, as well as thousands of labor investigations. As an employer, you are required to post a notice in your area of work informing employees of the right to file a complaint with the U.S. Department of Labor. The department currently employs nearly 1,000 U.S. Department of Labor investigators in more than 150 offices that receive complaints. For many years, misclassification was not at the top of the IRS or U.S. Department of Labor (“DOL”) priority list. That changed in the mid-2000s, when the IRS, the dol, and state agencies began intensifying their audits of for-profit corporations and nonprofits. In 2004, the IRS audited a nonprofit youth soccer league in Fairfield, Connecticut, and valued the league at more than $300,000 in retrospective taxes, penalties, and interest, based on its coaches` misclassification as independent contractors instead of employees.

The league eventually struck a deal with the IRS and agreed to treat its coaches as employees in the future and pay $11,600 in retrospective taxes, thankfully only a fraction of the initial assessment. Finally, for those of you who need to comply with the Affordable Care Act, according to lawyers at Orrick Law Group, .” The employer`s coverage responsibilities and the calculation of penalties for non-provision of compliant health insurance depend on whether a person is properly classified as an “employee,” which significantly increases the adverse consequences of misclassification.