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Worker misclassification can result in steep penalties for businesses, P.1

For businesses, properly classifying workers is an important matter. Worker classification impact a variety of areas of business operation, including workers’ compensation benefits, wages, and business taxes. When things are done incorrectly, employers may end up unfairly benefiting.

Workers may be classified into one of four categories: independent contractor; employee; statutory employee; and statutory nonemployee. In determining how to classify a worker, the degree of control and independence each worker has is the primary question. 

Employee misclassification is something that state regulators keep an eye on, but which they have historically been limited in their ability to monitor. Under newer guidelines from the U.S. Department of Labor, though, the Louisiana Workforce Commission has been able to improve its oversight in this area.

Prior to the new guidelines, which were enacted in 2011, the Louisiana Workforce Commission was required to conduct random audits, but the newer guidelines allow the agency to audit companies deemed to be at high risk for employee misclassification. Since the new guidelines were enacted, the agency’s record in terms of tracking misclassification, underreporting of wages, nonpayment of unemployment insurance taxes, and various other violations, has improved considerably.

Under state law, the consequences of worker misclassification are progressive in that there are no penalties for first-time offenders and penalties become steeper for each subsequent offense. Up through a fourth offense, businesses are progressively fined, and prosecution begins with a fifth offense.

In our next post, we’ll continue this conversation and look at the penalties levied by the IRS for employee misclassification, as well as how an experienced business law attorney can help a company avoid liability in this area.


Business Report, “Contract labor or employee? The Louisiana Workforce Commission targets high-risk companies to weed out misclassifications,” Sam Barnes, Jan. 20, 2016.

IRS, “Independent Contractor (Self-Employed) or Employee?” Accessed Jan. 25, 2016. 

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