Based on your answers, here is the estimated level of risk.
Risk level 1:
Risk level 2:
Risk level 3:
Risk level 4:
Thank you for taking the IES Risk Calculator Misclassification assessment! We hope this sheds light on the importance of accurately classifying workers and the financial implications of misclassification.
Total Estimated 1-Year Liability
Total Estimated 3-Year Liability
Studies show that 10-20% of ICs are misclassified. Many factors contribute to misclassification risk, including but not limited to: control of where, when and how the IC performs work, having them do the same work as employees and engaging them in states with strict classification rules increases the risk percentage for misclassification.
Average Spend per IC
Number of ICs Annually
Estimated ICs Annual Spend
$50 for each W-2 that wasn't filed for mis-classified employees.
Estimated gross wages for all misclassified employees x 1.5%. This doubles to 3.0% if the employer did not file a Form 1099 for the worker with the IRS.
Social Security and Medicare (FICA) Tax Penalty
Penalty is to pay 20% of the Social Security and Medicare taxes the employee should have paid. The penalty doubles to 40% if the employer did not file a Form 1099 for the worker with the IRS.
Social Security and Medicare (FICA) Employer Portion
Back-taxes for 100% of the employer taxes for Social Security (6.2% up to that year's wage limit) and Medicare (1.45%).
FUTA Employer Portion
No. of Misclassified ICs * 6.2% up to $7000 in wages.
Failure to Pay Taxes Penalty
FICA taxes for Penalty (reduced rate for employee's share) and Employer Portion x 5%. Tax penalty range is between 0.5% to 25%.
If the IRS suspects fraud or intentional misconduct, there could be additional fines and penalties, including: up to 100% of the FICA taxes (for both the employee and employer portion), up to $1,000 in additional penalties or sentenced to jail up to one year, or both. (B24)
The penalties listed above do not include any potential class action lawsuits and/or settlements which have ranged in severity but have been anywhere between $5million (Lowe's) to $240 million (FedEx). (B25)
IES is a leading provider of remote and contingent workforce solutions, specializing in global Employer of Record, Agent of Record, and Independent Contractor compliance services in 150+ countries. Founded in 1974, IES is a woman-owned business, certified by the WBENC, and partners with companies to provide compliant employment solutions that empower people’s lives.
THE INFORMATION IN THIS REPORT IS FOR GENERAL INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, CONSULTING OR OTHER PROFESSIONAL ADVICE
Innovative Employee Solutions (IES) is not a law firm and does not and cannot give legal advice, opinions or recommendations regarding your legal rights, risks, obligations, or strategies. IES makes no warranties about the completeness, reliability or accuracy of the information contained in this report.
Before taking any action based or relying on this report, you should always seek legal advice from a qualified attorney authorized to practice law in your jurisdiction.
Misclassifying workers can trigger IRS or state tax audit, investigations by the U.S. Department of Labor, as well as lawsuits which can result in hefty fines, penalties, business interruptions, and bad press. Correctly classifying workers of all types is critical. Download this complementary guide to help you stay compliant.