Risks of Misclassifying Workers
Many businesses have faced the consequences for counting employees as independent contractors: If you sent a 1099 instead of a W2 because of misclassification, you can face a $100 fine per worker. You can be charged your share of FICA that you should have paid, plus 40% of the FICA your worker should have paid. You can be charged 1.5% plus interest of worker wages that you failed to withhold federal income taxes for. You will face similar consequences from state agencies for failure to pay or withhold unemployment taxes. All of these can be backdated for up to three years per worker. Workers that were misclassified can come back after you for unpaid overtime and other benefits. – See more here.