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Employee misclassification can be costly to your business

On Behalf of | Jul 5, 2022 | Employment Litigation

If you are an employer who outsources labor to third parties, it is crucial to have measures in place that help distinguish traditional employees from independent contractors. Otherwise, you may misclassify your workers, which is against the law.

According to a recent report, 10% to 30% of employers have misclassified workers. Some do it deliberately to save on costs, while others do so without knowing. Either way, it comes with undesirable consequences to the business or employer involved.

The potential risks of misclassifying workers

With the growing awareness of workers’ rights, the risk of being investigated for worker misclassification has increased over the years. 

All it takes is a whistleblower to set off an audit, and if you are found to have misclassified your workers, you may have to square it out with the IRS first. The taxman may demand back taxes or impose huge fines on your business depending on the facts of your case.

You may also face class-action lawsuits by the affected workers. It might lead to costly and lengthy legal battles, which you are likely to lose, not to mention the legal fees and potential fines.

The bad publicity your company or business will get might also affect its reputation, and as a result, you may lose customers or clients. Additionally, investors may question your business practices and integrity or lose confidence in your company.

Staying on the safe side

There is more to classifying workers than the contractual language used to engage their services. In addition, it is a never-ending process given that workers come and go. 

Therefore, your business needs to take a proactive stance by having policies and processes that work when classifying new and existing workers. Training your human resource department on the legalities involved is an excellent place to begin and ensure compliance with the law.