Woes of Employee Misclassification
Worker misclassification can result in legal battles, fines, penalties, and brand damage. The media today is filled with ongoing class action lawsuits involving large, well-known organizations. These can result in huge costs for your company. Not only legal costs, but also punitive damages, compensation that goes above and beyond individual or government fines and payments
Misclassified in Different Ways
There is a misconception that the only way that you can be misclassified is as an independent contractor (IC). An independent contractor is the most common scenario, you can also be misclassified as an exempt employee. Each type of misclassification comes with its own set of issues.
The advantages of hiring exempt employees include no overtime pay and more knowledge and responsibility. Downsides include higher pay rates and no ability to deduct pay for hours not worked. You can also legally give exempt employees unpaid time off or unpaid suspension.
Wage and Hour Division
An investigator from WHD may investigate any claims to determine whether these laws apply to an employer. If the employer is subject to these laws, the investigator will verify that workers are paid and employed properly according to the laws administered.
Reputation Damage
Misclassification hurts workers, the company’s bottom line and can damage their reputation. An audit or lawsuit can put the company in the public eye, damage recruitment efforts and the overall reputation of the Brand. Independent contractors may be hesitant to work with an organization if they know they have been involved in a misclassification lawsuit. Moreover other businesses may shy away from partnerships due to negative media attention. Correcting reputational damage can be complicated and time-consuming, slowing down operational efficiency and disrupting talent pipelines.
Non-Exempt Misclassification Penalties
The penalties for misclassification of non-exempt employees can be severe. And can have tremendous financial consequences for businesses. Companies can face lawsuits, class-action lawsuits, audits by the IRS, and pay owed overtime, back wages, lost benefits, interest, and other damages. Additionally, if an employee was incorrectly classified as an independent contractor and was hurt at work, they may be able to file a negligence claim since they would not have access to workers’ compensation benefits.
Even in an ever-changing economy, the right to be treated fairly in the workplace is one thing should never change.
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