What is Employee Misclassification And Method to Avoid The Risk?

“Employee misclassification” refers to the practice by an employer of improperly classifying employees as independent contractors to escape any legal obligations under state labor, employment, and tax laws, without restriction, the laws governing lowest wage, overtime, severance pay, workers’ compensation insurance, temporary disability insurance, wage payment, and payroll levies.

Governments and authorities are particularly concerned about the misclassification of employees as independent contractors because it causes significant losses in tax revenue and benefits to the social security and welfare systems. When a worker is incorrectly categorized as an independent contractor, neither taxes nor social security benefits are withheld by the employer, or rather the entity who contracts the worker. This is done so that independent contractors can pay their taxes and contribute to their social security benefits.


  • Negative publicity for the business that misclassified its employees.
  • Severance pays and other benefits if the employee is terminated and retroactively asserts his or her rights as an employee.
  • Obligation to repay taxes and social security over several years.
  • Financial Penalty

Tips To Avoid It

  • Businesses that use contract workers must be aware of the rules that apply to employee classification. The Fair Labor Standards Act (FLSA) governs employee classification in the US.
  • Doing an internal audit of your current classification program and processes will help to ensure that your independent contractors are classified correctly. And now is the perfect opportunity to create any official program or procedures you do not already have in place.
  • Every contractor you hire must have a properly drafted contractor agreement in place, describing precisely what services the contractor is furnishing and laying out the terms of their relationship with you, even if you’ve worked with someone for several occasions without any issues using a verbal agreement.
  • Consider establishing a program for independent contractor involvement to stay biddable and reduce your threat. This program will assist you in finding, enlisting, and managing contingent workers legally.

In today’s growing economy, using contractors might give your business an advantage, but if you’re not careful, they can also be a big problem.


EXANTE Sec. broker review | Forex Broker Trading Reviews

About the broker EXANTE Sec. was founded in 2011 in Malta, by Alexey Kirienko, Anatoly Knyazev, and Gatis Eglitis, in Malta. Self-described as a professional broker for professional traders, EXANTE has a large and varied range of products available and its own proprietary trading platform. It currently operates globally, with clients from more than 100 […]

Ensuring Profit-Maximization During NSE Holidays

Although there are several risks associated with trading during NSE holidays, there are also several opportunities for profit maximization. To ensure profit maximization during these periods, traders must take the following steps: Preparing Ahead. The first step to maximizing profit during the NSE holidays is to prepare in advance. Traders must analyze market trends and […]