Employment Law Mistake: Misclassifying Employees as Independent Contractors

/cdklawyers.com// 12/24/2011

In these tough economic times, many companies attempt to cut costs by hiring independent contractors instead of employees. Using independent contractors can be financially advantageous since a company that hires an independent contractor does not pay certain taxes, health benefits, unemployment compensation insurance, or workers’ compensation insurance. But, while many employers hire independent contractors legally, some employers attempt to skirt the law by merely misclassifying their employees as independent contractors.


The United States Department of Labor recognizes this presents a serious problem for the affected workers since the workers are often denied benefits and other protections, such as family and medical leave, overtime compensation, and minimum wage. Employee misclassification also generates losses to the United States Treasury and the Social Security and Medicare funds.


Therefore, the Department of Labor has launched a Misclassification Initiative to combat this problem. The Department of Labor and the Internal Revenue Service have entered into an agreement to share information, and eleven states have signed similar agreements with federal agencies to better coordinate enforcement efforts.


Companies that are found to have misclassified workers expose themselves to liability for back wages, employment taxes, and penalties. For more information regarding the classification of workers, contact the employment law attorneys at Clouse Dunn LLP at [email protected]


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