Dangers Of Employee Misclassification

Posted by Jeff Pelliccio on May 3, 2016 8:24:00 AM

In ICS insights

Local, State, and the Federal governmental bodies have been cracking down on the misclassification of employees. Forbes magazine recently released information referencing a “hit list” of industries that the government believes is likely to misclassify employees as Independent Contractors (IC’s). One of the major reasons for misclassifying employees is often that businesses simply do not have a clear understanding of the IRS’ requirements. Misclassification reasons can also be more sinister such as avoidance of paying taxes in order to evade offering benefits, or not paying overtime, or even minimum wage. The misclassification of employees as Independent Contractors is a serious problem which affects employees, employers, and the entire economy; some estimates have misclassification costs at over $50 billion in lost tax revenue annuals.

Misclassified employees are often denied access to critical benefits and protections to which they are entitled, such as the minimum wage, overtime compensation, family and medical leave (FMLA), unemployment insurance, and safe workplaces. Paid Sick Leave acts in addition, employee misclassification results in lost income to federal and state governments in the form of lower tax revenues, which is needed to replenish state unemployment insurance and workers’ compensation funds. It inadvertently places additional financial burden on taxpayers and undermines the economy.

However, most employee misclassification violations are unintentional. Some businesses may accommodate an individual’s request to engage as an Independent Contractor based without fully understanding the IRS requirements for proper classification.

The issue is that several variations exist on how businesses can classify workers or independent contractors, resulting in no clear-cut way to classify people and properly onboard them to ensure they pass the federally mandated checklist of requirements to be classified as an IC.

The best way to avoid misclassification violations is to partner with a staffing agency so they assume the burden of classifying employees. The American Staffing Association (ASA) recently stated this may be the best way to mitigate risk and ensure that a well thought out Independent Contractor Evaluation & Compliance (ICEC) program is in place to process workers and classify them appropriately.

Is your Contractor Population misclassified? Do you have any misclassification concerns? If so, Infinity Consulting solutions can provide you with proper worker classification through a comprehensive Independent Contractor Evaluation & Compliance (ICEC) program. Our team of experts are ready to answer your questions and help you navigate the complexities of managing a temporary workforce.  

For more information about employee classification and how ICS can be a trusted business partner visit