In the wake of the Coronavirus pandemic, as of April 13, 2020, more than ten percent of American workers have filed for unemployment. Unfortunately, many have been denied certain benefits due to their employment status as independent contractors.
Louisiana Employment Laws
The Louisiana Workforce Commission provides the rules and regulations for employers in regard to hiring employees and independent contractors in Louisiana. There is a presumption that a worker is an employee and not an independent contractor. If a worker is deemed an employee, they need to be on payroll, receive a W-2, and be covered by workers compensation and unemployment insurance. An additional factor not always considered is that employees who are acting in the course and scope of their employment can open their employer up to lawsuits due to their negligence. On the other hand, independent contractors can be paid with a 1099 and their negligence can most often not be attributed to the employer via respondeat superior.
Why Do Employers Misclassify Workers?
The most logical answer is to reduce overhead and avoid dealing with the paperwork and expense of an ordinary employee. When an employer classifies a worker as an independent contractor, he avoids mandatory overtime pay, social security and medicare taxes, benefits, workers’ compensation insurance, and most relevant to today’s circumstances: unemployment insurance and/or compensation tax.
Factors in Determining Employee Status
The following factors are used to determine the classification of a worker.
the individual’s performance of services.
of time the individual performed the services or other details as to the performance of
controlled in the performance of his service; there is need for supervision of the individual.
public that the individual is an employee of the company.
performing services for the company or for any period thereafter.
service, which the company provides.
and cannot survive economically if he ceases to provide services for the company.
during the company’s regular hours.
Factors in Determining Independent Contractor Status
The following factors indicate that the relationship is one involving an independent contractor:
others and does in fact perform such services for others.
usual course of business and best left to the discretion of the individual.
agreement which has a specific contract amount and a definite term.
It is important to note that each case has to be considered on its own facts and the various factors have to be weighed against each other. Usually, general control is sufficient to consider the relationship as employment while the existence of a written contract typically indicates independent contractor status.
What are the Penalties if an Employer is Misclassifies a Worker?
While state and federal agencies perform regular audits on businesses, in most instances, employers misclassifying workers are found in one of three ways. First, a worker will dispute its classification with its employer and subsequently file fa complaint with the Department of Labor. Second, a worker who is injured on the job is denied a workers’ compensation benefit. Finally, and most relevant, a worker who is laid off or terminated and then is denied unemployment benefits.
In a National Employment Law Project study, it was found that in some states, more than 60% of employers misclassify their workers. Therefore, with the recent rash of unemployment claims, businesses across the country should be prudent as to their worker classifications.
The consequences for employers misclassifying workers can vary depending on whether or not the DOL and the IRS determine the misclassification was unintentional, intentional, or even fraudulent.
If the misclassification was unintentional, the employer faces penalties including but not limited to the following:
If the IRS suspects fraud or intentional misconduct, it can impose additional fines and penalties including but not limited to the following:
The consequences can be serious for misclassifying a worker so be objective and prudent when making that determination.
Should you have any questions or you would like to discuss this issue in further detail, please do not hesitate to contact us to schedule a free consultation.