Employers Beware: Misclassification Cases Are Costly And Common

Many employers erroneously classify workers who should be employees as independent contractors, due to the significant tax savings. However, misclassification cases present major risks. The independent contractor status for a worker is not favored by the IRS, the Department of Labor (DOL), the states, and many agencies within the states including those enforcing workers' compensation benefits and unemployment. As such, treating a worker who should be an employee as an independent contractor can result in costly litigation and even personal liability.

The biggest problem in classifying workers is that there is no uniform definition of "employee" or "independent contractor" under all the Federal and State labor and tax laws. The Fair Labor Standards Act, passed in 1935, has the broadest definition of "employee" and that has served as the model for most State wage hour laws. Additionally, there have been and continue to be many cases concerning this issue