For three years, John worked as a freelance contractor for a company under the promise of a fixed rate and the title of "independent contractor." During that time, he received no benefits, no vacation, and no job security, all while managing his own taxes and expenses.
Then, after an audit, the company’s HR informed John he had been misclassified. He would now be reclassified as an employee. This meant he was entitled to benefits, overtime pay, and back pay for the past three years. On top of that, the company had to pay hefty fines to the IRS for the mistake.
While it might seem easier for businesses to classify workers as independent contractors to avoid taxes, paperwork, and other legal obligations, it’s important to make sure that the classification is accurate. A worker’s status isn’t determined by the title or contract—it’s based on the facts of the working relationship.
Misclassification can lead to serious consequences, including violations of both tax and wage laws. The penalties can be steep.
If you're unsure about whether to hire someone as an employee or contractor, ask yourself: do you enjoy talking to IRS agents?
Let's talk about avoiding costly mistakes before they happen.
Comments