Finance News & Insights

Penalty for misclassifying new hires as ICs: $150k

Here’s another example of how misclassifying workers as independent contractors can get you in serious – and expensive – trouble.  

New workers at one company weren’t added to the payroll during a probationary period – and in some cases, were never added at all.

Greenstone Materials Inc. admitted to the Dept. of Labor (DOL) that it had all new hires start as 1099 workers during their three-month probationary period. After that, the company left it up to workers whether they wanted to remain contractors or be brought on as employees.

That led to violations of the Fair Labor Standards Act’s (FLSA) overtime provision when straight time rates paid to the misclassified workers didn’t account for overtime.

Now the California company has to go through a total revamp of its pay practices, including:

  • hiring a new payroll service provider
  • creating an FLSA-compliant employee handbook, and
  • paying $149,008 in liquidated damages and back wages.

Classify correctly

As you know, misclassifying workers as independent contractors can be a costly mistake. And it’s one that the DOL is on the lookout for constantly.

If an individual is doing work that’s integral to your business, he or she is more than likely an employee, not a contractor.

Note: If you’re still not sure of a worker’s status, this six-point DOL fact sheet is a good resource for determining the correct classification.

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