From the course: Hiring Contract Employees

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The downsides of misclassification

The downsides of misclassification

From the course: Hiring Contract Employees

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The downsides of misclassification

Early on, the Acme company properly used independent contractors to help grow their business. But then they made a mistake with some of the workers and kept them on as independent contractors despite their working full-time for more than a year. Acme should have reclassified them as employees. Of course, one of them gets fired, files an unemployment claim, and the misclassification ball gets rolling. If the IRS decides Acme misclassified a $50,000 a year independent contractor, they'll not only have to pay the $4,000 in Social Security, Medicare, and unemployment taxes that they failed to withhold, they must also pay sanctions for not withholding federal income taxes and for the failure withholding employer's share of those taxes. In addition, if the IRS determines that the withholding was willful, sanctions for failing to withhold the income taxes and the employee's share of Social Security payment can total another $22,000. Acme may receive fines and penalty from state agencies as…

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