Employee misclassification penalties: Examples and protections

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In the US, up to 30% of employers have misclassified at least one worker. The most common form of employment misclassification is when companies wrongfully classify a full-time employee as an independent contractor when those workers should have employment status and receive the benefits of being an employee. 

While misclassification can often be an honest mistake, it can also be intentional and a way for companies to avoid providing workers with statutory employee benefits and paying payroll taxes. If workers suspect they have been misclassified, they can report it to the IRS. The IRS will then determine whether a company violated employment law and may face penalties, including class-action lawsuits, millions in fines for each misclassified employee, and even jail time.

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