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Employers risk extra costs when they misclassify workers

Employers must determine how to classify their workers for purposes of payroll taxes and workers’ compensation premiums. Workers in New York will be either employees of the company or independent contractors. This distinction determines whether an employer has to pay payroll taxes. People classified as employees and not contractors must then be sorted according to their risk of injury. The state has a schedule of worker codes that reflect on-the-job hazards. The accurate coding of employees for workers’ compensation determines what employers pay in premiums.

Mistakes that result in people being classified incorrectly as an independent contractor could leave an employer with significant financial liability. If an Internal Revenue Service audit uncovers workers who should have been classified as employees, then the employer would be charged for back taxes and may also have to pay money for benefits and overtime. On the other hand, a worker classified as an employee, when that person should really be labeled an independent contractor, would place unnecessary payroll expenses on an employer.

As for workers’ compensation coding, an employer may need to update coding periodically to reflect new or changing work duties and new positions. An intentional misclassification could result in fines. Honest mistakes can cost an employer money too. An employer that classifies everyone under the same code may be missing opportunities to classify some employers under codes for less dangerous work.

Legal advice might help an employer classify workers accurately. Classifications are not necessarily static either. An evolving business might need to add people with new types of work duties or bring on independent contractors. An attorney may review the employment circumstances and provide guidance that could prevent the misclassification of employees. In the event that an employer stands accused of misclassifying workers, an attorney might develop a defense strategy.