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Are Your Workers Misclassified?
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Are my workers and/or workforce classified accurately?
Are my workers employees or independent contractors?
Are my new hires employees or independent contractors?
Misclassifying your workers can trigger government audits, investigations, as well as lawsuits which can result in hefty fines, penalties, business interruptions, and bad press for your company.
For workers that fit the criteria of an "employee," failure to classify them accurately can lead to paying back taxes. In the United States, this is up to 41.5% of an employee’s wages for up to three years. If the misclassification is determined to be intentional, corporations can face fines as high as $500,000 or even jail time.
As another example for failure to classify accuratley in the U.K., the penalties on tax, social security and pension could be assessed up to 100% of the penalties plus interest.
For 50 years, a non-profit organization engaged instructors as "independent contractors", however due to the ever-changing worker classification laws in California, the organization was contacted by the EDD and told the instructors did not qualify as independent contractors and they were audited.
The organization was required to pay back taxes for the previous 5 years for each worker that did not qualify as an Independent Contractor and pay back taxes and penalties of $15k per worker for improperly classifying their instructor population. In addition, the insurmountable legal fees that came with hiring an attorney.
Read the full case study here.
IES has helped clients who have faced multiple misclassification settlements in the past. We work with clients to create robust vetting and onboarding processes and help tighten up independent contractor agreements.
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