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Know the Employer Penalties for Misclassifying Employees

When an employer misclassifies an employee, either purposefully or negligently, they may face a number of penalties, depending on the severity of the misclassification. A worker who suspects he or she suffers from misclassification may file a suit that not only addresses their own concerns but also sheds light on larger endemic issues within the employer’s practices.

The suit may potentially incur significant tax penalties for the employer, while also helping to secure back wages and additional compensation.

If an employee is misclassified, it is usually to allow the employer to avoid certain forms of taxation or the obligation to pay overtime wages. This is particularly common when an employee is misclassified as an independent contractor.

For instance, in recent years, emerging industries have attempted to work around employment laws to classify employees as independent contractors. Many of these companies have seen this tactic backfire in court. The Department of Labor has taken a special interest in this practice and regularly identifies and penalizes employers intentionally misclassifying employees.

Back wages that an employer should have paid, often in the form of unpaid overtime wages, may factor into an award in a misclassification suit. However, forward-wage awards are also possible in some instances.

Apart from such an award, the IRS is not particularly forgiving when employers misclassify employees and avoid paying sufficient taxes on those employees. In many instances, this may result in a doubling of the avoided tax burden, which can prove disastrous for any business.

If you suspect that you employer misclassified you and owes you some form of restitution, you may have grounds for a lawsuit to claim back wages and compensation. Don’t hesitate to use all your resources to build a strong claim and pursue justice for yourself and others in the workplace.

Source: FindLaw, “What Are the Penalties for Misclassifying Employees?,” accessed March 23, 2018