Under Missouri law, an employer is generally required to pay unemployment and payroll taxes, and provide workers’ compensation for its employees. While a majority of Missouri employers comply with these requirements, others undermine the system and place an additional burden on those that properly classify workers. Consequences for misclassification
Employers that misclassify workers as independent contractors cut costs by not paying unemployment taxes, workers’ compensation insurance and Social Security withholdings. These workers are off the books and unable to access other employee benefits such as health insurance, pension plans, vacation pay or sick pay.
More importantly, misclassified workers are denied the protection of the safety nets put in place by state law, such as unemployment and workers’ compensation in the event that they lose their jobs due to no fault of their own or incur workplace injuries.
If an employer classifies an employee as an independent contractor and does not have a reasonable basis for doing so, the employer may be held liable for employment taxes for that worker. Companies that knowingly misclassify workers face penalties in the amount of $50 per day per misclassified worker, up to a maximum of $50,000 in fines. Another state statue allows the Division of Employment Security to penalize an employer 25 percent of the amount the state has been defrauded. Classification tests
To determine whether an independent contractor is misclassified, Missouri uses a test of 20 factors to identify the correct legal status of a worker.
In 2009, the Missouri Department of Labor made identifying misclassification a priority. In 2010, the first full year of the implementation of the Misclassified Worker Detection System, the investigations conducted by Employment Security have found that employers misclassified more than 5,000 employees as independent contractors or something other than employees.
Employment Security identification of misclassified workers has increased by nearly 2,700 percent between 2008 and 2010. In 2010, this allowed the department to collect additional taxes from 744 employers that were attempting to evade payment by misclassifying workers. In 2009,
Employment Security projected that employers owed an additional $135,000 in taxes because of misclassified workers. Division efforts in 2010 allowed the agency to identify projected delinquent taxes of $819,000, which is more than six times the 2009 amount. The department will continue to work toward identifying employers cheating the system, and leveling the playing field for all employers conducting business in Missouri. Larry Rebman is director of the Missouri Department of Labor. He may be reached at email@example.com.