Small Businesses: Avoid Employee Misclassification Fines

Understanding the ins and outs of hiring takes time and attention. The worst thing you can do is not have a plan for this. Many companies want to hire independent contractors to avoid doing payroll and paying employers’ payroll taxes but employee misclassification (classifying an employee as an independent contractor) can be costly.

One day, I received a call from a potential client (let’s call him Joe) saying that he had been audited by the state and received a $4,000 bill for one employee that had been misclassified as an independent contractor for a full year. Most of that bill was late fees and penalties and not the actual taxes due.

Some employers have flown under the radar screen with employee misclassification, but all it takes is one complaint or an unemployment claim filed, and your company could be hit with a bill that you’re not prepared or financially able to pay. To help you avoid the dilemma that Joe got himself into, check out my guide on Independent Contractor vs. Employee.