The classification of workers is growing and changing. Do you know what the consequences are of misclassifying employees and/or independent contractors? Let’s discuss. Factors for Classifying Employees In order to understand the classification criteria for workers, you have to know the factors that affect classification as defined by the IRS: Behavioral control – Who controls the work and how the worker completes the job? Financial control – Who controls the financial and business aspects of the work – including how the worker gets paid, how expenses are reimbursed, and who provides the tools, materials, or supplies? Relationship of the parties – Are there benefits like pension plans, insurance, vacation time? Will the relationship continue? Is the work being performed a key component of the business? Consequences of Misclassifying Workers Misclassifying workers as independent contractors come with a host of consequences: Violations of Wage Law Failing to pay overtime and minimum wage is a violation of the Fair Labor Standards Act (FLSA) and offending employers are subject to criminal penalties and liability for back wages. More than the penalties, though, the damage caused by damages and legal fees can put your business in a bad way as well. I-9 Violations Form I-9 is used to verify the identity and employment authorization of anyone hired for employment in the United States – citizens and noncitizens alike. Certain industries are less closely controlled, including construction, home healthcare, warehousing, and the like. I-9 violations include refusal to keep the proper paperwork on file and penalties include civil fines, criminal penalties, debarment from government contracts, back pay fines, and more. Legal Penalties There are many legal actions that can be taken when you misclassify workers. Stoke broke down the following legal penalties. Class-action lawsuits come from large numbers of employees seeking punitive damages, …
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