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Watch out for the risk of misclassifying employees

The hiring of independent contractors has many pros and cons that are complex. It is important, however, to make sure that you avoid classifying workers as independent contractors when they are actually full-time employees.

Organizations need to be wary of the recent cracking down on this type of misclassification to avoid getting penalties and driving up legal costs. The following blog lists what the penalties can be if an employer is accused of misclassifying a worker.

Back wages

Independent contractors are cheaper to employ because they are not covered by the Fair Labor Standards Act's regulations on overtime pay. Therefore, independent contractors are paid the standard hourly rate regardless of how many hours they work. If this is brought to the courts, employers may have to pay out the missed wages that the employee is owed as a full-time employee.

Back taxes

Hiring workers as independent contractors also has tax benefits. Therefore, in the same way as having to pay out back wages, the Internal Revenue Code (IRC) will ensure the back payment of all of the missed tax payments. Not only this, but the IRC has started to double penalties for employers that do not correctly adhere to the reporting requirements.

Forward penalties

Employers may also be penalized by being ordered to pay for punitive damages as compensation for losses. This is intended as a punishment and acts as a deterrent from misclassification.

Legal Guidance

You may want to seek trusted legal guidance in order to find out more about liability prevention in regards to misclassification.

Source: Findlaw, "What are the penalties for misclassifying employees?," accessed July 28, 2017

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