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Employment misclassification typically occurs when an employer labels workers as independent contractors when, under the law, they should be classified as standard employees.
There are several key elements that state auditors consider when determining the correct classification of an employee, including the degree of control the employer exercises over the worker’s tasks, the method of payment (whether hourly or salaried), the nature and extent of the work performed, and other relevant factors.
The auditor uses a multipart test to help with their determination and considers many of the factors mentioned above. If the results show that most factors surrounding the worker’s job and conditions favor employee status, the state is likely to consider the worker to be a standard employee and not an independent contractor.
Employers often misclassify workers as independent contractors to avoid paying the various taxes and other employment-related costs. When someone is classified as an independent contractor, the employer typically just cuts them a check, and it’s up to the worker to handle their own taxes.
When there is an employer-employee relationship, the employer is responsible for paying various federal and state taxes, including Social Security, Medicare, Medicaid, FICA, and unemployment insurance. Misclassifying workers is often a way for employers to avoid these expenses and pass the burden on to the workers. Classifying workers as independent contractors is also a way for employers to avoid or limit their exposure under workers compensation laws.
Craig Donnelly of Donnelly Law LLC has dedicated his legal career to supporting businesses in Illinois. Whether you’re a new business owner or have an established company, he is dedicated to ensuring you receive the informed legal counsel you need to navigate any legal challenge so you can keep your business moving forward with confidence.
Still have questions? Ready to get started? Contact Donnelly Law LLC today to schedule a free consultation.
The most effective way for a business to respond to a worker misclassification complaint is with the assistance of experienced legal counsel. These matters are delicate and highly fact-specific. The penalties for getting it wrong can be severe.
In every case where my clients have received an inquiry of this nature and have sent it to me promptly, we’ve been able to respond strategically and, in many cases, significantly reduce their potential liability or even avoid it all together.
Responding without legal guidance can easily exacerbate matters, so it’s crucial to involve counsel from the outset to protect your business and minimize risk.
The penalties for misclassifying employees can be substantial and may add up quickly.. It’s not uncommon to see thousands of dollars in penalties even for a small business. If a state audit discovers misclassified employees, the penalties to the employer can include payment is missed tax contributions going back for the entire time of the misclassification, plus a very high interest rate. In egregious cases, the state may even deem the misclassification to be fraudulent in which case fraud penalties may be assessed.
These claims are extremely case-specific and require careful, precise handling. You’ll want to hire an attorney as early as possible, because even a single poorly worded response or unintended admission can seriously jeopardize your position during an audit or an investigation.
An experienced attorney will know how to navigate the nuances of employment classification law and present your side of the story effectively so your business is not put at unnecessary risk.
Often, a worker is paid as an independent contractor and later claims they worked more hours than recorded and should have been paid overtime. That kind of claim not only raises wage and hour issues but also opens the door to a misclassification investigation.
When this situation arises, the best approach for a legal representative is to act promptly, address the issue directly, and work to minimize potential damages if misclassification has occurred. The goal is to prevent matters from escalating further.
In cases where clients classify workers as independent contractors, we work with them to prepare a written agreement that clearly sets forth the various roles and responsibilities of both parties, ensuring your position is secure in the event of a dispute or an audit. While such a document cannot guarantee that the state auditor will not ultimately find that there has been misclassification, in our experience it is very helpful during an audit to have a written independent contractor agreement to support the employers position.
For more information on employee misclassification defenses in Illinois, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (630) 559-7776 today.
Craig Donnelly of Donnelly Law LLC has dedicated his legal career to supporting businesses in Illinois. Whether you’re a new business owner or have an established company, he is dedicated to ensuring you receive the informed legal counsel you need to navigate any legal challenge so you can keep your business moving forward with confidence.
Still have questions? Ready to get started? Contact Donnelly Law LLC today to schedule a free consultation.