Employee misclassification is when an employer incorrectly categorizes an employee as an independent contractor.

Yes, employee misclassification is an illegal practice. It can result in loss of public tax revenue and reputational damage.

Employers must correctly categorize their workers and make amends with the affected parties to fix employee misclassification. This includes paying back wages to workers and taxes to government authorities. Additionally, employers must provide employee benefits, legal fees, and accrued fines.  

Several factors determine contractor misclassification. For example, if a worker has a substantial investment in their business (training or equipment), the IRS will consent to their contractor status. Similarly, other factors include workers receiving compensation by project, performing work that demands specialized skills, and intending to establish contractor-client relationships.

Reduce your employee misclassification risk by knowing independent contractor rights, understanding classification laws, getting expert advice, and auditing the existing classification processes.Use Gloroots worker misclassification analyzer to estimate and mitigate your employee misclassification risk.