The Three Biggest Problems and Consequences of Employee Misclassification

Attorney L. Reed Bloodworth, managing partner of Bloodworth Law, discusses the three biggest problems and consequences of employee misclassification.

Bloodworth Law serves as legal counsel for Florida businesses of all sizes across the state. Our Employment Law Team can work with you remotely, via video conference or in the office with the appropriate safety measures taken to protect you as we help you with your legal issues.

What are some of the biggest problems and consequences for employers who misclassify their employees?

IRS Expects Income and Payroll Taxes

First, the IRS will get mad at you because the IRS will require you to withhold income taxes and pay payroll taxes for an employee. But that requirement does not exist for independent contractors.

So, if you misclassify someone, the IRS will come back to you for not withholding income tax and not paying payroll taxes when you should have. This can be an expensive problem for you.

DOL Expects Minimum Wage and Overtime

Second, if that employee did not make at least minimum wage or overtime, then the Department of Labor can get mad at you. Or, you can get sued by that person for not paying them appropriate minimum wages and overtime.

So you don’t want to classify anybody as an independent contractor incorrectly if you are concerned that this might happen.

Workers’ Compensation Policy

Third, you could also have a major problem with workers’ compensation.

Workers’ compensation only covers employees, and your workers’ compensation policy only covers employees.

If you misclassify someone, you could find yourself in a situation where they are considered an employee that you should have had workers’ compensation coverage for. But instead, your workers’ compensation policy does not cover them.

No Workers’ Comp Policy

Or worse, you don’t have a workers’ compensation policy because you don’t think you have employees.

And in that situation, your business is liable to the person who was injured on the job, out of your pocket. And that could be a very expensive proposition if a misclassified independent contractor is injured.

These are the three reasons you want to make sure that you classify your employees correctly.

As an employer, there are Florida laws to protect you and your company. Be sure to periodically consult with a Florida employment law attorney to review the classification of your employees and independent contractors.