Question

What are some of the potential ramifications of misclassification of an employee or contractor?

Answer 1

Employee misclassification is the practice of labelling workers as independent contractors instead of an employee. In such a case, organizations avoid paying the benefits that employees are entitled such as health insurance, paid time off and employer’s side payroll taxes benefits.
Employers can avoid following expenses by misclassification of employee-
a.Overtime pay
b.Unemployment compensation tax
c.Benefits like vacation, holiday and sick pay
d.Medicare taxes
It does not matter whether or not misclassification is intentional, it creates various risks for the organization such as owing back taxes, benefits and penalties for its misclassified workers.
There are following consequences of employee misclassification
1.Violations for wage claims-There are several types of assessments and legal guidelines to determine whether or not workers should be assumed as an employee. If employers misclassify workers they may be violating salary, employment eligibility laws and related laws
under the state wage laws it is mentioned that organization can be liable for failing to pay overtime and minimum wages.
2.Fines and penalties resulting from an audit-If business enterprise misclassified workers in such case Federal and local government lose out on tax and payroll revenue. According to the federal and local government, employers responsible for paying state and federal payroll taxes as well as medical taxes for all employees who are found to be classified under this incorrectly.
to make these payments can impose additional fines also.
3 Class- action lawsuits- When a company is involved in class actions lawsuits, your organization representatives from legal, HR, marketing and finance departments require to help in finding documents, defending claims and complying with the investigation. During this time, if key personnel are not available to their primary work.
4.Payments to workers who are reclassified-The misclassified worker can report a grievance with their country labour department. If complaints are valid, workers are eligible to claim employee benefits such as health and welfare coverage, stock purchase plans and rest break time.
5.Damage to the company’s reputation-It can not only hurt the workers and bottom lines but it can damage organization reputation. An audit and lawsuit can highlight your company in the eye of the public, as a result, negative publicity.

How an organization can protect from misclassification?
Company has HR professionals to help in determining the best way forward with these complex issues.
If the company hire a worker and disagree on the individual’s classification, the company need to file Form SS-8
Organizations should have define and clear program for engaging and managing independent talents.