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Understanding Worker Misclassification Penalties and How to Avoid Them

Kathleen Jackson

Created on June 5, 2024

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Understanding Worker Misclassification Penalties and How to Avoid Them

What are the penalties for misclassifying workers? Misclassifying workers can result in serious consequences, which vary depending on the specific labor laws in your area and whether the misclassification was intentional or accidental. Here’s a breakdown of potential penalties in the US:

Wage Claim Audits

Tax Violation Fines

Punitive Damages

Payment Penalties

Class Action Lawsuits

Repayments for Employee Benefits Insurance

Jail Time

Employees can file lawsuits as a group for misclassification.

Additional fines intended to punish the company for wrongdoing.

Companies might need to repay the cost of employee benefits.

Up to $1,000 per misclassified worker

In severe cases, company executives might face imprisonment.

The government might audit the company's wage practices.

  • $50 fine for each W-2 tax form not filed
  • A percentage of the misclassified employees' wages and FICA taxes