Many industries have cause to hire people to handle ‘on call’ work on an occasional or semi-regular basis. Whether the company is part of a seasonal industry or a particular person’s special talents are only needed now and then, a business may decide that such workers are not needed on a routine basis and elect to hire them as ‘independent contractors’ instead of rostered employees.
Although such a relationship can be mutually beneficial if handled properly, there are many laws in place that regulate independent contracting and in what situations it is – and is not – allowable. What are the potential consequences for improperly classifying a worker as an independent contractor? Our attorney Tonia Lucio breaks it down.
The Feds Could Come Calling
Most business owners probably know the benefits for businesses to hire independent contractors versus employees. But what a lot of business owners may not realize is that improperly classifying workers as independent contractors can have serious financial consequences for the business. In some cases, certain individuals within the business can even be held personally liable for the misclassification.
If your business is in Texas and has workers misclassified as independent contractors, your business may hear from one of several governmental agencies, including the U.S. Department of Labor (DL), the Texas Workforce Commission (TWC), or the IRS. You may also hear from a lawyer suing on behalf of the misclassified worker or several misclassified workers.
Why am I Under Investigation?
There are several possible ways that an investigation or audit of your company for misclassified workers could take place. One possibility is that your company is the unlucky target of a regular random audit. It could also stem from a report to the agency or even an independent contractor filing an unemployment benefit claim.
The Department of Labor, the TWC, and the IRS all share information between their agencies. So if one agency finds an apparent misclassification of workers, it may share that information with other agencies and your business may find itself having to respond to investigations or audits by all three agencies. To make matters worse, the DOL, the TWC, and the IRS each use a different test to determine whether workers are properly classified as independent contractors. Although parts of the three tests do overlap, the tests aren’t identical.
A Steep Price to Pay
The financial exposure for employee misclassification can be significant. It can include liability for unpaid back wages, in addition to an amount equal to unpaid back wages. This is called liquidated damages under the Wage and Hour Law. The business owner could also be responsible for unpaid unemployment taxes and unpaid federal taxes related to those misclassified workers. The misclassified workers’ attorney fees and the business’s attorney fees to respond to and defend against the audits and lawsuits may also be charged to the offending company.
Whether a worker is properly classified as an independent contractor is sometimes not clear cut, so businesses that wish to use independent contractors should make sure that those workers are properly classified. As such, it’s not enough to only verify the appropriate rules and regulations at the beginning of the relationship with the worker, but it should also be done periodically throughout the company/contractor association, since the circumstances surrounding the working relationship and the law can change. If you are concerned that any of your independent contractors may be misclassified – or if you want to ensure that your employees are properly classified moving forward – Richards Rodriguez & Skeith can help. Our team of expert business and employment lawyers will guide you through every step of the classification process and ensure that your employees are designated properly under the law. Contact us today to discuss your employment law needs.