(The Center Square) – More small businesses could get caught misclassifying regular workers as independent contractors.
This spring, the U.S. Department of Labor is expected to tighten the classifications of employees. Small businesses that have been using loopholes to designate their workers as gig workers rather than regular employees could face stricter scrutiny.
Attorney Glenn Gaffney of Gaffney & Gaffney in Glendale Heights said the Fair Labor Standards Act requires overtime be paid to employees who work more than 40 hours a week. There are some exceptions. Maids and janitors, retail workers, restaurant workers and limo drivers are examples of workers who may be subject to stricter scrutiny.
Gaffney said the Illinois Department of Employment Security is an agency that is aggressive about worker misclassification. IDES collects premiums for each regular employee so that workers can collect unemployment benefits if they are laid off or fired.
In light of the potential fines and penalties for misclassification, businesses need to be cautious and exacting when they classify workers, Gaffney said.
“The consequences can be devastating,” he said. “Failing to pay someone $20,000 in overtime over three years can wind up costing a business $250,000 by the time the back wages, fines, penalties and attorney’s fees are paid. Multiply that by 10 or more employees, next thing you know the business is bankrupt.”
If one gig worker attempts to collect unemployment insurance, and IDES agrees that they should have been classified as a regular employee, a business could be hit with an audit, Gaffney said. If the audit confirms multiple violations, the business owners who made the decisions can face individual liability on top of severe fines and penalties, Gaffney said.
“They can go after the business owner’s house. They can go after all of his or her assets,” Gaffney said. “Why take that risk? The best insurance that a business can buy is to do it right the first time and not have these problems down the road.”
Gaffney recommends sitting down with a knowledgeable lawyer to go over the specific facts like who the workers are, what they do and whether they work at one company 60% of the time or 90% of the time.
“Get a solid legal opinion before making the classifications. Otherwise, there could be a big problem someday,” Gaffney said.