Consequences of Worker Misclassification Can Derail Your Business 

 Posted on April 05, 2023 in Business Law

Many businesses staff their company with a mix of independent contractors and employees. They may rely on employees to manage departments and handle everyday operations, while they rely on independent contractors to provide specific services on an as-needed basis. Unfortunately, many businesses find themselves in hot water because they accidentally confuse these worker classifications.

Texas Law Regarding Worker Misclassification

The differences between employees and contractors may seem obvious at first glance, but knowing how to classify a worker is often more difficult than it seems. The Texas Workforce Commission lists 20 points to consider when determining how to classify a worker, such as:

• Contractors receive instruction regarding how, when, and where work must be performed while contractors have a much greater degree of freedom with regard to how work is completed.

• Contractors do not receive training, while employees are typically trained by other employees at the company.

• Employees work set hours while contractors do not necessarily have set hours.

• Employees receive benefits from the employer, such as health insurance and paid time off, while independent contractors typically do not receive any benefits.

• Employees receive payments for time worked, while contractors are paid for the completion of projects.

• Contractors are expected to furnish their own tools and materials, while employees are typically provided with the necessary tools by the employer.

Consequences of Worker Misclassification

With so many different concerns to keep track of, many employers fail to recognize when a worker's work circumstances have shifted. They are shocked when they realize they have misclassified workers. Unfortunately, whether intentional or accidental, this kind of mistake can have grave consequences.

Non-compliance can lead to steep fines levied by the IRS, Department of Labor, and state agencies. Employers who misclassify employees as contractors may be accused of wage law violations under the Fair Labor Standards Act (FLSA). Employers may also be liable for back wages and unpaid overtime. Additionally, employers may be asked to pay penalties and interest for failing to properly withhold taxes from employee wages. 

Worker misclassification may also lead to I-9 violations and associated penalties, as well as penalties for failure to pay workers' compensation and unemployment insurance.

The financial costs associated with employee misclassification can be devastating to a business. This is why it is so important for employers to take the time to understand the difference between employees and independent contractors and work with an experienced business law attorney who can provide specific guidance regarding worker classification.

Contact our Bexas County Business Law Attorney

San Antonio business lawyer Geoffery Ray Mayfield is dedicated to helping businesses stay in compliance with Texas and federal employment laws. He can provide comprehensive legal advice on worker classification, as well as help businesses with a range of other matters, such as setting up LLCs and partnerships. Call us at 210-535-0870 to set up a free consultation.

Source:

https://www.twc.texas.gov/files/businesses/form-c-8-employment-status-comparative-approach-twc.pdf