If you engage a contingent workforce and would rather avoid fines, jail time, and damage to your reputation, this post is for you. This month, the Biden Administration rolled out a proposal that would make it harder for companies to classify workers as independent contractors. From the beginning, the administration has had its sights set on misclassification and this proposal makes it clear that it remains a top priority. While worker classification is important at all times, this kind of news makes it that much more important for companies to pay attention because violators can expect to be subject to strict penalties.
Fine, Jail Time, & Negative Press
Big companies like Uber make headlines for their missteps and pay equally big fines. Still, it can be a costly mistake to think it’s only the big companies that face consequences. By rescinding the Trump Administration’s “Worker Classification Rule,” the Biden administration made it easier for workers to argue for minimum wage and overtime protections/compensation. In addition to having to pay back 100% of the matching FICA taxes they would have paid had they classified the worker correctly up front, employers can end up subject to additional penalties such as the following:
- $50 fine for each W-2 form they failed to file
- A penalty equal to 1.5% of the employee’s wages
- $5,000 penalty for the first misclassified employee and up to $25,000 for each subsequent violation
Suffice to say, misclassifying workers does not save money in the long run. Perhaps scarier than the possibility of monetary damages, misclassification has landed some business leaders under house arrest.
In addition, class-action lawsuits, failed audits, and negative headlines can damage a company’s reputation to the point where both workers and consumers are hesitant to engage with the company. It’s just not worth it!
The Bottom Line
Someone on your team needs to to protect your business, stay compliant, and reduce the risk for fines and unpleasant attention from the IRS. If you don’t have the in-house team to do it yourself, it’s worth considering working with a partner.
In our world, accurate worker classification and top notch risk management are always the priority. We are the first to be aware when change is in the air. We track rules in every state as well as on a federal level and offer services to help clients stay compliant. Contact us if you have any questions about your own status.
