Misclassification
Misclassification
Misclassification refers to the incorrect classification of a worker as either an employee or an independent contractor. The distinction is essential, as employees and independent contractors have different legal rights, tax obligations, and entitlements to benefits. Misclassifying workers can lead to significant legal and financial consequences for employers, including potential penalties, back taxes, and liability for unpaid wages or benefits. To avoid misclassification, employers must carefully assess the worker's relationship with the company, considering factors such as the level of control exercised over the worker, the nature of the work performed, and the degree of independence in the work arrangement. Properly classifying workers is critical for compliance with labor laws and tax regulations. In cases of uncertainty, employers may seek guidance from legal counsel or file IRS Form SS-8 to request an official determination from the IRS.
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