Employee Misclassification Means Contractor or Sub
The employee misclassification news was back in. Classification Codes such as 8810 (Clerical/Administrative) are the number one question we receive calls and emails about every month. Employers want to make sure they are not being overcharged for improper classification. Most of the news articles do not concern classification codes when referring to employee misclassification.
Employee misclassification occurs when an employer wrongly classifies what would be a true employee as a contractor or sub-contractor. The IRS publishes many guides on how an employee should be classified (employee vs. contractor vs. statutory employee, etc.). The IRS guides may not fit every situation as there may be state-specific guidelines. The IRS guides are more of a “rule of thumb.”
There are ways to make sure that an insurance carrier premium auditor realizes that you do have contractors that are not covered under an employer’s insurance policy for Workers Compensation. That info will be covered tomorrow.
Employee misclassification (contractors vs. employees) can carry with it very severe penalties. Not only are employers that have non-covered employees not paying their fair share of their Workers Comp, they are also not paying the proper taxes. Many states have locked down on this situation. Additional enforcement will occur as state and federal agencies share more databases.
North Carolina, our HQ state, had a very severe problem of employers not covering their employees with WC. The state had over 30,000 employers that did not have the proper WC coverage.
West Virginia increased their enforcement of non-covered employers by posting signs at the businesses informing the public of the businesses not having coverage. I actually had seen one of the signs on a business trip to WV a few years ago.
The bottom line is to make sure your company does not have uncovered contractors or employees and to not let the buzzword “Employee Misclassification” keep your company from questioning or disputing the classification codes of your employees.
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