Attorneys James T. Carey and P. Zachary Stewart

Pursuing your Claims. Protecting your Rights.

Why do employers misclassify employees?

On Behalf of | Jul 19, 2021 | Overtime And Wage Issues

Many employees nationwide, including in West Virginia, use various ways to protect their business’s bottom lines — many times to the detriment of their employees. One method they use is the misclassification of employees. It costs a company a whole lot less to employ independent contract workers than permanent employees. 

How do employers benefit from this practice? 

Misclassification of workers benefits employers in the following ways: 

  • Employers avoid paying unemployment insurance and other taxes when they hire independent workers. 
  • They can avoid paying workers’ compensation premiums on misclassified employees. 
  • Employers deprive federal and state governments of tax revenue that cover public services. 
  • Tax on employees’ income, Medicare, Social Security and unemployment taxes form part of the tax evasion. 
  • Reduced labor costs allow businesses to be more competitive when bidding on projects. 

How does this tax evasion affect workers? 

Employers often convince workers they benefit from this practice, also referred to as “underground economy.” Workers do not have money deducted from their wages for Medicare, Social Security and unemployment taxes. While they might be convinced it is in their best interests, they will be unprepared for the consequences. Misclassified workers will be without the legal protection that permanent employees typically have. They will not be entitled to the protection of wage and hour laws; workers’ compensation benefits will not cover them, nor will they be eligible for unemployment benefits. 

Furthermore, classified as independent contractors, the workers will be responsible for filing and paying their self-employment and income taxes. Ignorance about these procedures and obligations could lead to workers underpaying taxes and face accusations of tax evasion. 

Full-time employees in West Virginia should guard against being fooled by employers who misclassify them as independent contractors. There are legal steps they can take against employers who support the underground economy and violate wage and hour laws