What is an employee under FLSA?

What is an employee under FLSA?

In the application of the FLSA an employee, as distinguished from a person who is engaged in a business of his or her own, is one who, as a matter of economic reality, follows the usual path of an employee and is dependent on the business which he or she serves.

What happens if an employer misclassifies an employee?

Non-complying employers may also be required to pay amounts that should have been withheld or paid on the employees’ behalf. For example, taxes, FICA, FUTA, benefit contributions or the value of lost benefits, plus penalties, interest, other damages, and/or attorney fees.

What happens if an employee is misclassified as an independent contractor?

If the misclassification was unintentional, the employer faces at least the following penalties, based on the fact that all payments to misclassified independent contractors have been reclassified as wages: $50 for each Form W-2 that the employer failed to file because of classifying workers as an independent contractor.

What to do if you classify an employee as independent?

If you hire a worker and disagree on the individual’s classification, you can file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS. While waiting for a determination from the IRS, you should still treat the worker as an employee, withholding all necessary taxes.

How does an employer determine if a worker is an employee?

While this might seem reasonably straightforward, it’s important to note that the IRS says, “Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor.

Non-complying employers may also be required to pay amounts that should have been withheld or paid on the employees’ behalf. For example, taxes, FICA, FUTA, benefit contributions or the value of lost benefits, plus penalties, interest, other damages, and/or attorney fees.

What are the consequences of misclassifying employees as independent contractors?

The answer to these questions can impact the employer’s obligation to withhold taxes and pay payroll taxes like FICA and FUTA. Similar issues arise under state worker’s compensation and unemployment tax laws. Misclassification of employees as independent contractors can have both financial and legal repercussions.

If you hire a worker and disagree on the individual’s classification, you can file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS. While waiting for a determination from the IRS, you should still treat the worker as an employee, withholding all necessary taxes.

What happens if an employee files a complaint against an employer?

Employers can get in hot water for failing to withhold payroll taxes, and they could also be on the hook for other penalties if the employee files a complaint saying they weren’t properly compensated. Hiring independent contractors instead of employees is one way businesses can keep costs down.