What are the Consequences?

There are potential consequences when a worker is misclassified. 

For misclassified workers they may:

• Be ineligible for such payments as unemployment insurance (UI) and workers' compensation
• Lose other labor law protections such as minimum and prevailing wage, overtime, health and safety, and family and medical leave
• Become liable for their full Social Security taxes and have to report their own income taxes. In other cases, if the employee is paid in cash, neither the employee nor the employer is paying FICA/Social Security taxes. Consequently, the employee may receive less in Social Security benefits at retirement as the unreported wages are not credited toward the employee's potential Social Security entitlement.
• Lose access to employer-based benefits, such as health insurance

For employers who misclassify their employees, they:

• Avoid paying income taxes, FICA taxes, unemployment taxes and workers' compensation premiums on workers that they do not classify as employees
• Create an unfair competitive advantage
• Underbid employers who do not misclassify their employees

For government and taxpayers, worker misclassification results in:

• Underreporting of UI taxable wages, resulting in less UI taxes being collected to pay benefits
• Less taxes going into the UI trust fund result in higher taxes for all other employers in the state to pay for benefits
• Uncollected income taxes and FICA taxes as some workers who receive IRS Form 1099-MISC fail to report their earnings and pay the taxes owed, and the employers are not paying their share of FICA taxes on these workers.