Last time, we began speaking about the issue of worker misclassification and the importance for businesses of complying with federal and state laws in this area. Last time, we described in general the penalties that can result from employee misclassification. As we noted, prosecution begins after a fourth offense, prior to which fines are progressive.
At the federal level, penalties for misclassification of employees kick in when the employer has no reasonable basis for the improper classification. If it is determined that there is no reasonable basis, the employer can be held liable for employment taxes for each worker. Employers may obtain relief from penalties, though, if they have a reasonable basis for the misclassification, have filed all required federal information returns on a basis which is consistent with the worker’s classification, and no other employers with a substantially similar position have been treated as employees for any period of time.
Employers who have misclassified workers may, in some cases, be eligible to participate in the Voluntary Classification Settlement Program, which allows them to reclassify workers properly for future tax periods while obtaining partial relief from federal employment taxes.
Navigating issues related to worker classification can be fairly straightforward, but not in every case. Employers who have had problems complying with classification regulations and who have been found in violation can benefit from working with an experienced business law attorney, not only to navigate dealings with state and federal agencies enforcing the rules, but also to ensure effective compliance moving forward.