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Penalties for Misclassifying Employees

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When you run a company and have employees that work for you – each employee will have an employment classification. We know, this probably isn’t news to you, but it is crucial that when you classify your employees, you do it right. With the advent of remote workforces and the influx of global talent in many U.S.-based tech companies, it is vital that you understand employee classifications and the penalties for misclassifying employees.

TRUSS may be able to help. We provide a complete and comprehensive global hiring platform to help you find, recruit, hire, and manage employees in Central Asia and more locations across the globe. We provide the help that your company may need to find global talent to add to your team and the knowledge to help you avoid the financial penalties that go hand in hand with misclassifying employees.

Contact TRUSS today to learn more about how we can help you find global talent, manage payroll, and much more in Central Asia!


READ MORE: Top 5 Global Tax Issues for Tech Companies


Top 4 Penalties for Misclassifying Employees

Did you know that an estimated 30% of companies have misclassified employees? The most common misclassification of employees happens when a full-time employee is misclassified as an independent contractor – which breaks the law and denies that employee the benefits they deserve.

The penalties for misclassifying an employee are dependent on a few factors – the size of your company, how long the employee was misclassified, and if the misclassification is deemed intentional by government agencies. The primary reasons why companies are penalized due to misclassification are that employees do not receive their complete benefits and protections and the government loses tax revenue.

Here is a closer look at the penalties that companies can face when employees are misclassified:

1. Fines for Tax Violations

When companies hire an employee – regardless of where that employee lives and works – the company is subject to tax obligations. When a company misclassifies an employee as a contractor rather than an employee and is audited, the company may be responsible for paying lost tax revenue and additional fines for tax law violations. Tech companies that hire in Central Asia may have additional tax laws they need to follow and the financial penalties for violating those tax laws may vary from country to country.

2. Government Fines

Financial penalties for violating tax laws are just one form of financial punishment a company may face when it misclassifies an employee. Governments – here in the United States and across the globe – may enforce additional financial penalties on your company. The severity of the fines will vary based on the country where your employee is a resident and where your company is located.

Overhead View of a Groupe of Employees in an Office
Group of Employees Working at a Table

3. Employee Lawsuits

When an employee is misclassified as a contractor and not an employee – it may mean that employee does not receive the benefits that they deserve and the loss of employee benefits can have a significant impact on that employee and their family. Employees who are misclassified by a company may seek legal recourse or file a complaint that can result in additional financial damages paid by the company and potential criminal liability.

4. Damaged Reputation

Has your company misclassified employees before? We know that financial penalties like fines and lawsuits may make the headlines, but the damage to your reputation as a company is equally as important to consider. The misclassification of employees can result in a negative reputation with the public, current employees, shareholders, customers, and potential employees.


READ MORE: Best Ways to Hire Global Remote Talent


How Can TRUSS Help Prevent Misclassifying Employees?

When you hire a global and remote workforce, it may be even more important that you classify your employees correctly or you may face financial penalties and more in the United States and abroad. We understand that it can be complicated to find, hire, recruit, and then manage a global team – but not with the help of TRUSS.

TRUSS provides the support that you need to build a successful global team for your tech company. We have the expertise and knowledge of Central Asian countries like – Uzbekistan, Kazakhstan, and Georgia – that you need to find and hire the right people for your team. When you have found the right fit, the TRUSS platform will help you manage payroll and has the ability to function as your employer of record in Central Asia. With these services, we can help ensure that your company remains compliant with local labor laws and regulations – to include how you classify your global employees.

Contact TRUSS today to learn more about the penalties for misclassifying employees and how we can help!

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