Misclassification of employees is the categorizing of workers as independent contractors rather than employees. This enables employers to cut costs and save money. Misclassified workers are often underpaid and left without benefits and legal protections.

Worker misclassification also has a negative financial impact on the government. When employers avoid paying unemployment taxes, unemployment insurance, Federal taxes and premiums, the government loses out on significant revenue. 

INDEPENDENT CONTRACTORS — Independent contractors are workers who retain independence in their work.  They cannot be ordered to work during certain hours or at certain locations. Independent contractors decide how much they will charge. 

Independent contractors are not protected by the Fair Labor Standards Act.  Minimum wage, overtime, and hours worked are not regulated or protected for independent contractors. They do not receive compensation for work-related injuries, medical leave, or unemployment benefits. 

EMPLOYEES — An employee’s work is determined by its employer.  If the employer controls the work, the worker should be classified as an employee. Employees are under financial and behavioral control with defined expectations regarding their work product.  Employees are typically forbidden from working for other businesses/competitors. 

REMEDIES — Misclassified employees can file a complaint against their employers. Damages may include paying for health insurance, wellness benefits, retirement contributions, and paid time off.  Employers who inaccurately classify their workers are at risk of substantial financial penalties and even jail time. 

If the IRS and/or DOL decides that the misclassification of an employee was an honest mistake, an employer may still need to pay 1) fees for each unfiled W-2 form; 2) unpaid salaries with interest; and 3) employee and employer contributions to FICA, Social Security and Medicare. 

If they determine that the classification was intentional, employers may need to pay 1) an additional percentage of salaries; 2) the entirety of outstanding FICA contributions for both employee and employer; and 3) up to $1,000 for each misclassified employee.  There is also the possibility that the employer may be sentenced to prison.  

As you can see, the proper classification of workers is critically important.  A worker who is misclassified can be very costly to an organization.   

Please contact Wolfson and Klein-Wolfson, PLLC, a Syosset, New York based law firm to help with any worker classification matters.  Whether you are an employer with classification questions, or an employee that feels you are misclassified, we can assist.