Operating a company comes with a lot of challenges, including finding the right candidates to fill open jobs. What happens if you hire someone and classify that worker incorrectly? Employers can face serious consequences when they misclassify employees as independent contractors and vice versa. This is an important concern when running a business, as mistakes can quickly lead to penalties, fines, lawsuits, and higher taxes. These are just a few of the dangers that companies face when misclassifying independent contractors and employees in the state of Florida.
How Does the Issue of Misclassification Arise?
For the most part, companies are not caught misclassifying employees or independent contractors until someone speaks up about a potential problem. For example, these problems do not usually come to light until the employee or the independent contractor files a complaint with the Florida Department of Labor or the United States Department of Labor. When a complaint is filed, an investigation will be opened into the practices of the employer to determine if employees and independent contractors have been misclassified. There are times when audits are conducted of random businesses to make sure they are classifying their employees correctly, but not every company will be audited in each round.
What are the Penalties for Misclassifying an Employee?
If your company is found to have misclassified an employee as an independent contractor or vice versa, you could face any of the following penalties:
- 1.5% of wages
- 40% of FICA taxes that were never withheld from a paycheck
- 100% of matching FICA taxes that the employer should have paid
- Interest is also assessed daily from the date these taxes were to be collected
- A penalty of failure to pay taxes that equals 0.5% of the unpaid tax liability for every month up to no more than 25% of the total tax liability
The penalties listed above are for businesses that the Department of Labor and Internal Revenue Service deemed to have made an honest mistake when misclassifying an employee or independent contractor.
Should it be determined that misclassification was intentional, companies could face the following penalties:
- 100% of FICA taxes for the share of the employer and the employee
- 20% of all the wages that have been paid
- Up to $1,000 per misclassified worker in criminal fines
- Up to one year in prison
Quite possibly, the biggest penalty that the employer can face when misclassifying an employee as an independent contractor is being on the hook for unpaid employee wages. Your company will owe the misclassified employee a large sum of money, depending on how long he or she was misclassified, in unpaid wages.
Contact an Experienced Business Law Attorney Today
There is no hard line rule in Florida as to how an employer-employee relationship is classified. Because of the lack of a hard line when it comes to classifying a relationship, it is vital that your company uses a business law attorney to help with the classification for every employee hired and independent contractor signed. Be sure to contact the team from The Benkabbou Law Firm, PLLC in Florida. Call our office at 813-586-3351 to schedule a consultation today.