Employee Misclassification Can Be Risky Business

Do you employ Independent Contractors? Freelancers? Interns or temp workers? 

If you answered yes, then you could be at risk. When it comes to onboarding a contingent workforce, misclassification can be a real concern. There are countless laws and regulations when it comes to classifying employees and knowing what requirements employers have to meet. 

Hiring a contingent workforce has it’s perks if done correctly. Independent Contractors are not necessarily offered certain benefits such as health insurance, paid leave, or retirement plans. That’s a cost-effective bonus. Also, employers are not required to withhold taxes on their pay, make Medicare or Social Security contributions, or pay worker’s comp premiums. Sounds great, right? The downside, however, is that misclassifying an employee can mean huge consequences.

How costly can it be to misclassify an employee? Can you afford to find out?

The Risks and Consequences

The potential consequences and liabilities for your business is not a short list. 

Wage law violations 

The Fair Labor Standards Act (FLSA) is in place to help protect workers and assure fair wages and treatment. This act covers non-exempt employees, and failure to comply with the law comes with hefty consequences. Even if you unknowingly make a mistake, you can still be held responsible – talk about harsh. 

Companies found at fault get hit with massive penalties. The Department of Labor takes this seriously, and they have a team of auditors that look into classification of Independent Contractors. Former workers can also make a claim against a company within a certain time period. If you are found at fault, you could have to pay wage deficits, unpaid overtime, and also attorney fees. Those are high stakes!

Tax trouble 

Let’s say you bring on an Independent Contractor, but they should have been hired as a W-2 employee. That means taxes were not taken out, and neither were Medicare or Social Security payments. That falls on the employer. For you, that means penalties and possibly owing Uncle Sam.

I-9 verification 

While you don’t fill out the I-9 form, it’s still your responsibility to verify that it’s correct and complete. All of the information has to be there, and you have to have the know-how about which documents qualify for verification. Again, the Department of Labor keeps a close eye on this. If you are caught with incomplete or incorrect forms, you could be held liable.


If for some reason you are ever audited or a claim is made against you, all responsibility falls to you to provide the proper paperwork and documentation. Any missing information, incomplete forms, or missing paperwork can result in liability issues. The rules aren’t easy to follow, and it can be easy to overlook simple mistakes. 

Businesses rely on their hired workforce to complete their new-hire forms, and to do so correctly. While it might be the goal to always double-check their work, it may not always happen. Any missteps can cost you. It’s not just the IRS that is keeping tabs, but the Department of Labor, too. 


As far as enforcement goes, benefits are a hot topic. Misclassifying an employee and not offering them coverage under company benefit plans can be a costly mistake. There is legal liability, as well as opening yourself up to a lawsuit.  When it comes to healthcare coverage, the rules are always changing. It can be hard to keep up with the requirements, and making a mistake is all too easy. 


Any employee who discovers they were misclassified can open a lawsuit against you. This would be in addition to any other penalties and consequences you could suffer from governing agencies. Lawsuits not only hurt your bank accounts, but they can damage your reputation. Not to mention that gathering documentation, undergoing investigations, and going to court is all time-consuming. It’s not how you want to utilize your staff or spend your time and resources. 

Feeling confident that you can avoid all of these mishaps? Put your employee classification knowledge to the test. Take this quiz to see if you have the classification chops, or if your business might be at risk. 

Take the Quiz Here


What if I told you that you could hire a contingent workforce, but pass off all the risk? Would you be tempted?

At Gigomy, they are experts when it comes to evaluating Independent Contractors and determining classification. Once you recruit a new gig worker, you can let the gurus do the heavy lifting. Because they are Agent of Record and are doing the onboarding, you are off the hook. 

Here is what the process looks like. 

  1. RECRUIT – You want the best, so find your perfect candidate. Sometimes that’s a tall order, but when you partner with Gigomy, it’s the only part you have to worry about. Onboarding is not your problem anymore.
  • EMPLOY – Here’s the best part. Once you find the right hire, you get to pass them off to Gigomy to onboard! They determine if they will become an Agent of Record for the Independent Contractor or if they will be brought on as a W-2. Once you pass along the info, your hands are clean. 
  • REPORTING – You still want to be in the loop when it comes to your contingent workforce, and Gigomy has your back. Track their progress through detailed and customized reporting. Everything you need to know is right at your fingertips on their paperless platform.
  • OPTIMIZE – Get back to what you do best! Move away from the mundane tasks and enjoy the risk-free benefit of partnering with an expert. Now you can focus your energies on more important things. All while reaping the benefits of dodging the misclassification bullet.

It’s as simple as it sounds. You can have some peace of mind knowing that Gigomy is an expert when it comes to classifying Independent Contractors. No more worrying about misclassification, penalties, lawsuits, or liability. Recruit and build your contingent workforce with confidence. 

Not to mention, skipping the whole onboarding process will save you time and money. Gigomy also offers payrolling services, adding even more benefit to your business. As the AOR, they can handle collecting timesheets and issuing pay. To add even more value to your on-demand workforce, Gigomy offers access to benefits like health, vision, and dental. 

Ready to hear more? By signing up for Gigomy’s free demo, they can walk you through what it looks like to hand off your administrative burdens to experts in the industry.

Don’t risk it! Contact Gigomy for your free demo today!