Misclassifying Employees may seem a No-Brainer, but Can Be More Costly – Los Angeles Wage & Hour Claims Attorneys Blumenthal, Nordrehaug & Bhowmik

by Norman B. Blumenthal on December 26, 2012

  With employees, an employer has to withhold taxes, pay employment taxes, and provide employee benefits.
With independent contractors, a business withholds no taxes, pays no employments taxes, and provides no employees benefits. Furthermore, independent contractors are easier to fire. But while an employer may be seriously tempted to misclassify employees as independent contractors, doing so can be more costly than paying employee benefits or the employer’s portion of employment taxes.
According to the U.S. Government Accountability Office (GAO), the Internal Revenue Service (IRS) loses billions in tax revenue because of misclassified workers. And according to a study by the Department of Labor, up to 30% of employers misclassify workers.
Cheating employers can be liable to employees for unpaid wages and overtime pay, and state and federal tax agencies for taxes, penalties, and interest. An adverse decision can involve taxes, labor and employment law, benefits, workers’ compensation, unemployment insurance, and more.
In a famous 9th Circuit case, Microsoft was sued, in a class action, by freelancers the company hired as independent contractors. After determining the freelancers were employees, Microsoft was required to change its staffing and worker classification practices. Microsoft agreed to pay overdue employer withholding taxes and issue retroactive W-2 forms to allow the freelancers to recover Microsoft's share of FICA taxes, which they had been required to pay. The company also agreed to pay freelancers retroactively for any overtime they may have worked. Between the IRS, the state of Washington, and its freelancers, Microsoft ended up paying one hundred million dollars to litigate and settle the case.
If you are an independent contractor who believes you have been misclassified, call an experienced Los Angeles labor attorney today at Blumenthal, Nordrehaug & Bhowmik at (310) 981-3918. Blumenthal, Nordrehaug & Bhowmik is a California employment law firm with offices located in San Diego, San Francisco and Los Angeles. The firm dedicates its practice to contingency fee employment law work for issues involving misclassification as a salaried worker exempt from overtime, failure to pay vacation wages, misclassification as an independent contractor, off-the-clock work, wrongful termination, discrimination and other California labor laws.

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