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What could your employer gain from misclassification?

When you started your new job, the owner of the company for which you began performing duties may have informed you that you would work as an independent contractor. You may have accepted this classification because you performed your duties at home and had the ability to set your own working hours. However, these aspects do not necessarily mean that an independent contractor classification is right for your situation.

Business owners and operators often misclassify their workers as independent contractors when they should actually fall into the employee category. This misclassification could occur for a number of reasons, but in many instances, employers could gain benefits from not categorizing their workers properly.

Possible employer gains

Even though you certainly want to trust the individual for whom you work to compensate you and treat you fairly as a worker, that person may still take steps to cut corners or otherwise benefit him or herself. Your worker classification could be an area in which cutting corners could result in financial gain or fewer obligations for your employer. Some examples of reasons an employer may misclassify workers include:

  • Employers would not have to pay certain taxes for workers classified as independent contractors.
  • Business owners could save a substantial amount on labor expenses.
  • Misclassifying workers could allow employers to avoid having to adhere to employee protection laws enforced by the Equal Employment Opportunity Commission.
  • Employers could avoid having to ensure that workers are U.S. citizens.
  • Classification as independent contractors also prevents the need for an employer to provide employee benefits, thus saving the employer money.

Employers could save thousands of dollars per worker every year through misclassification.

IRS and DOL tests

Because misclassification can result in the Internal Revenue Service missing out on tax revenue typically associated with employees, the IRS considers various factors to determine whether a classification is correct. Those factors include financial, behavioral and relationship aspects between you and the person paying for your services. The Department of Labor also considers similar aspects when determining whether misclassification has occurred.

Addressing misclassification

If you believe your employer improperly classified as an independent contractor rather than an employee, you may wonder how to address this issue. Because misclassification can have negative impacts on you just as it can potentially benefit your employer, you may wish to find out information on your options for gaining correct classification and your well-deserved benefits.

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