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.
Free Training & Resources
Webinars
Provided by Insightsoftware
Webinars
Provided by Yooz
Further Reading
Employees who are just getting started on their annual tax filing chores may come to you or other finance staffers for info. A lot of cash-...
No matter how hard you try, sometimes you and your finance team fail. We make mistakes. We miss deadlines. We fall short. In fact, a...
A Federal Trade Commission (FTC) rule that would ban non-compete clauses is scheduled to be finalized in April and go into effect soon afte...
Finance pros with lingering compliance concerns about employees working remotely will find insight, albeit limited, in new guidance. In...
In April 2025, U.S. Citizenship and Immigration Services (USCIS) released an updated version of Form I-9, Employment Eligibility Verificati...
A modern tech stack that gives you the power to analyze your enterprise data in real time may no longer be something on the nice-to-have li...