Many early-stage companies prefer the use of independent contractors to perform and fulfill the functions and tasks of their business operations. Based on how the working relationship is structured and how the independent contractor service agreement is prepared, miscategorizing an employee as an independent contractor can have multiple negative ramifications associated with such misuse. This article addresses the negative ramifications associated with their misuse. For a general guideline on the differences between the two classifications of an independent contractor vs employee, read our article “Independent Contractor vs Employee Classification”.

There is no single test accepted by all agencies and states to certify the correct classification of an independent contractor. This is why it is important to seek legal advice when classifying a worker as there can be serious consequences for misclassification.

Consequences for Misclassification

A company that misclassifies employees as independent contractors may be liable for a multitude of payback and penalties. Below is a non-exhaustive list of potential consequences of misclassification:

• back pay, including overtime compensation and other work-related expenses;
• employee benefits, including retirement benefits, paid vacations, sick days, fringe benefits, and health plan coverage;
• disability payments and worker’s compensation;
• tax and insurance obligations like unpaid federal, state, and local income tax withholdings, social security, Medicare, unemployment, and interest;
• liquidated damages, and civil monetary payments;
• return-to-work benefits;
• leaves of absence backpay;
• failure to provide notice required under employment law;
• discrimination suits; and
• fines and penalties.

It is essential to properly categorize all your workers to avoid the pitfalls and negative consequences associated with misclassification. Alpine Law can help you properly determine what status a worker should be categorized under. Contact us today for a complimentary consultation.

We offer quality and affordable legal services in preparing and reviewing employment agreements and independent contractor agreements. Contact us today for a flat rate.