Why is proper worker classification important?

On Behalf of | Dec 1, 2021 | Blog, Employment Law -- Employer |

Misclassification of employees can lead to a lot of issues for you as a business owner. Classifying an employee as an independent contractor will result in fines and also potentially legal action against you.

It is very costly to incorrectly identify workers as independent contractors when they are legally employees. However, the IRS explains worker classification can be confusing, so you need to seek guidance to ensure you do not make a mistake.

Basic guideline

The basic guideline for determining the correct classification of a worker is how much control you have over the person and his or her work. Independent contractors should operate quite distinctly from your business and be under the control of their own work.

If you tell the worker what time to work, what to do and control how he or she works, then that worker is most likely an employee.

Importance

It is important to classify workers properly to avoid monetary issues. For employees, you have the responsibility to withhold taxes and make tax payments. You may also have to provide certain benefits to an employee. If you fail to classify correctly, you will face penalties from the IRS and other tax agencies. You also could face a lawsuit for the lost benefits and rights the worker missed out on due to the misclassification.

Do note that the IRS offers help to assist you with the proper classification of your workers. You should use the form the IRS offers to check your worker status. It can help you to avoid unpleasant issues that will arise if your worker reports you for misclassification.