It’s that monster rearing its ugly head again: employee misclassification. We have discussed this problematic concept before and constantly caution our clients to avoid it at all costs. Studies show that an estimated 3.4 million employees are classified as independent contractors, when they should be reported as employees. In 2009, it was reported that misclassification cost the United States an estimated $54 billion in underpayment of employment taxes. The issue is becoming more pervasive today and the government will not hold back on redress efforts. This is precisely why you cannot afford to make this mistake.
Here’s a brief refresher on employee misclassification: You bring on someone new as part of your workforce. You have them sign a contract and complete a W-9. Just in time for tax season, you issue them a 1099 for their earnings and voila- you’re all set! No employment taxes, no unnecessary headaches with additional filings, right? Not so fast.
If you called this person an independent contractor but treated them like an employee, you have created a major problem for your company. What does it mean to “treat” someone like an employee? Behavior control is a major factor, i.e. where a worker performs duties or whose equipment they use to complete tasks. Financial control is another factor; namely, unreimbursed business expenses, ability to provide services to other companies or investment in the tools used to perform duties. There is much more to factor into this analysis.
Here’s the million-dollar question: Let’s say you are making this mistake- how will anyone ever find out? It takes one disgruntled or concerned worker to make a complaint and the rest will be history. Whether your actions are intentional (fraud) or unintentional, you can face stiff penalties and consequences for employee misclassification. Do not let this happen to you! This is an expensive lesson to buy! You don’t have to touch the stove to know that it’s hot! Contact C&G today to assist you in appropriately classifying your workforce!
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