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Focus on Misclassification: Are Your Nonprofit's - Venable LLP

Focus on Misclassification: Are Your Nonprofit's - Venable LLP 2025

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The document discusses the classification of workers in nonprofit organizations as either 'employees' or 'independent contractors.' It outlines the legal definitions, enforcement avenues, and consequences of misclassification, emphasizing the importance of understanding control factors and state-specific criteria. The document also highlights the IRS's 20-factor test and the economic realities test for determining worker status, along with potential liabilities for misclassification. Additionally, it provides guidance on identifying and remediating classification issues through self-audits and proper agreements.

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What is the liability of an independent contractor?

Many contractors and owners believe that if they hire an independent contractor to perform work and that independent contractor causes injury to others during the performance of that work, then it is the independent contractor alone who will be liable for those injuries. In most circumstances, this is correct.

What happens if you misclassify an employee as an independent contractor?

Misclassification may also result in failure to provide required protections to individuals under state and federal anti-discrimination laws. Those workers improperly classified as independent contractors could be entitled to certain notice obligations and enforcement protections relating to these laws.

Why would organizations be tempted to misclassify employees as independent contractors?

Often employers misclassify their employees intentionally in order to reduce labor costs and avoid paying state and federal taxes. This can leave misclassified employees with large tax bills.

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What are the possible legal consequences that companies face when they misclassify a job?

California law allows civil penalties to be charged to employers that intentionally misclassify workers. The fine can range between $5,000 and $15,000 per violation, and if there is a pattern of willful misclassification, the courts can fine employers an additional $10,000 to $25,000.

Why do employers knowingly or mistakenly often misclassify workers who meet the criteria for employees as contractors?

There are typically two reasons this happens companies make an honest mistake because they dont understand employment law, or they intentionally misclassify to save money. Neither reason is justifiable, as misclassification can lead to severe consequences, including penalties and lawsuits.

What potential liability could the company face from misclassification of the employee agent position as an independent contractor position?

There are cases where you may need to make an independent contractor an employee. While this does not decrease your respondeat superior liability, it prevents other legal trouble. Misclassification also leads to wage and hour violations, workers compensation coverage, and other employment law issues.

What are the major issues concerns with misclassifying an employee as exempt when they are really doing a job in a non exempt position?

FLSA misclassification hurts you by depriving you of protections that non-exempt employees are entitled to receive. One of those protections is the eligibility for overtime pay. Employees covered by the FSLA must receive overtime pay for any hours they have worked past 40 in a single workweek.

Focus on Misclassification: Are Your Nonprofit's - Venable LLP 2025

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What is the liability of an independent contractor?

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What are the possible legal consequences that companies face when they misclassify a job?

Why do employers knowingly or mistakenly often misclassify workers who meet the criteria for employees as contractors?

What potential liability could the company face from misclassification of the employee agent position as an independent contractor position?

What are the major issues concerns with misclassifying an employee as exempt when they are really doing a job in a non exempt position?

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