Understand the details of Misclassification of an Independent Contractor

Workers are entitled to FLSA protections like minimum wage and overtime pay when the FLSA applies because of the existence of an employment relationship between the worker and the employer. The Wage and Hour Division happens to be in charge of investigating claims that an employee has been misclassified as a liberated contractor and, as a result, has been deprived of the minimum wage, overtime pay, and other benefits and protections required by law. For more info read below.

Misclassification of an Independent Contractor in Contravention of IRS Regulations

In spite of changes at the Department of Labor, the Internal Revenue Service (commonly referred to as “the IRS”) has maintained a consistent set of rules regarding the identification of independent contractors (DOL). Employers risk heavy fines if they improperly label an employee as a freelancer or independent contractor. A worker’s pay is subject to FICA and income tax withholding if an employer-worker relationship exists. Whether or not a formal employer-employee relationship exists, this remains true.

The Internal Revenue Service (IRS) has the authority to levy penalties against a company if it determines that an employee has been misclassified. Penalties can be as high as 100% of the matching FICA taxes the employer should have paid in addition to fines of up to 3% of the wages, 40% of the FICA taxes that happened not to be withheld from the employee, or both. If the IRS determines that a person was improperly classified, they may impose these fines.

Check the status of the employee

IRS uses its own test and factors to evaluate the employee relationship, despite the fact that the test for determining employee status has been well-established under FLSA. This test determines how much supervision an employee receives and how much autonomy they are afforded while on the job. The IRS considers the taxpayer’s actions, financial status, and social connections when making this call.

The monetary consideration answers questions about who supplies the worker with equipment and materials, how the worker is compensated, and whether or not the worker is free to offer their services to others in the applicable market. Finally, the relational factors look into whether the worker is protected by a contract and whether or not the company provides any perks.

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Written by Sheri gill

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