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Is my workforce classified accurately?
Is my worker a W2 employee or a 1099 independent contractor?
Is my new hire a W2 employee or a 1099 independent contractor?
Misclassifying workers can trigger IRS or state tax audits, investigations by the U.S. Department of Labor, as well as lawsuits which can result in hefty fines, penalties, business interruptions, and bad press for your company.
Failure to provide W-2 forms for an employee can lead to back taxes of up to 41.5% of an employee's wages for up to three years. If the misclassification is determined to be intentional, corporations can face fines as high as $500,000 or even jail time.
For 50 years, a non-profit organization engaged instructors as "independent contractors", however due to the ever-changing worker classification laws in California, they were contacted by the EDD and told the instructors did not qualify as independent contractors and they were audited.
They had to pay back taxes for the previous 5 years for the workers that didn't qualify as 1099 Independent Contractors and pay back-taxes and penalties of $15k per worker for improperly classifying their instructor population. In addition, the insurmountable legal fees that came with hiring an attorney.
Read the full case study here.
IES has helped clients who have faced multiple misclassification settlements in the past. We work with clients to create robust vetting and onboarding processes and help tighten up independent contractor agreements.
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