Are you misclassifying your workers? Under the Fair Labor Standards Act, a worker is entitled to minimum wage and overtime pay protections.
The Wage and Hour Division is responsible for determining whether an employee has been misclassified as an independent contractor and has been denied critical benefits and labor standards protections.
Employees also need to be proactive in determining if they are classified properly or they run the risk of the employer’s share of taxes not being paid and employees share not being withheld.
While employees should be proactive, the burden typically falls on the employer. If the division finds a violation, the employer is liable for paying back taxes and interest. In addition, an employer who willfully disregards the law may also be fined $5,000 per misclassified employee for the first misclassification and up to $2,500 per misclassified employee for a second or subsequent violation.
Here are some key indicators to determine if your worker should be classified as an employee or independent contractor:
Employees will typically be working for someone else’s business, get paid hourly, salary, or by piece rate, uses employer’s materials, tools and equipment, typically work for one employer, have a continued relationship with the employer, are under the management of the employer who assigns work and decides when and how the work will be performed.
Independent contractors will typically be running their own business, get paid upon completion of a project, provides their own materials, tools and equipment, works with multiple clients, has a temporary relationship until the project is completed, decides when and how they will perform the work and decides what work they will do.
For more information, please visit:
https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation