The IRS, Department of Labor, and state agencies all scrutinize how companies classify workers. Misclassification can mean back taxes, penalties, and interest. Key signals of employee status include financial dependence, behavioral control, and the nature of the working relationship.
Who is regulating this? The IRS, the Department of Labor, state agencies, workers' comp boards, a bunch of different folks. But if you follow what I just laid out there for you as it relates to relationship, financial, behavioral control, and some of those other more common sense things as it relates to where is the dependency in the financial relationship, is this their primary source of income? Are they dependent on me as an employer to provide for themselves and their families? That smells a lot more like an employee. Than a contractor, right? So make sure that you're going through the proper steps to classify this on the front end so that you don't have to face— because the reality is not only could you possibly owe back taxes on those wages, you're also going to owe penalties and interest on wages filed, and also potentially have some punitive action taken against you as well for the burden that this puts on a worker who is misclassified.
