Worker misclassification occurs when a worker is not classified as an employee, but should be. Some forms of misclassification occur when workers are not reported at all, such as when working off the books or being paid under the table in cash. Misclassification also occurs when workers are classified incorrectly as independent contractors.
Misclassification of workers is not only wrong, it's against the law. Employers that misclassify employees as independent contractors cut costs by not paying unemployment contributions, workers' compensation insurance and social security withholdings. These employees are off the books and unable to access employee benefits such as health insurance and pension plans. More importantly, misclassified workers are denied the protection of the state laws, such as unemployment and workers' compensation in the event that they lose their job due to no fault of their own or incur a workplace injury. Are you off the books?
Consequences of 1099 Fraud
Employers that knowingly misclassify their employees face penalties in the amount of $50 to $1,000 per day per misclassified worker, and/or up to six months in jail per violation. State statute allows the Division of Employment Security (DES) to penalize an employer 25 percent of the amount the state has been defrauded. If an employer classifies an employee as an independent contractor and does not have a reasonable basis for doing so, the employer will be held liable for unemployment taxes for that worker. Knowingly failing to insure workers' compensation liability under the law is a class A misdemeanor, and is also punishable by a civil penalty of up to three times the annual premium the employer would have paid had it been insured or up to $50,000, whichever is greater. To determine whether a worker is classified correctly, Missouri uses the IRS 20-factor test to identify his or her legal status.
*Please note, employers with five or more employees, if applicable, must submit the federal 1099 miscellaneous forms to the Department of Revenue (those who intentionally fail to do so are subject to fines).
We are here to help:
Our department provides educational training to businesses that have questions about this issue. Learn more and sign up today! Make sure your business is in compliance with the law and that you are properly classifying your workers. Read our informational brochure.
Did you know?
In Missouri in 2013, 6,038 misclassified workers were identified. These workers were employed by 923 employers. Those employers owed an additional $1,687,311 (est) due to misclassification.
1099 Fraud Stats
*2008 figures are from the findings from audits only. 2009 figures represent findings from audits for the entire year plus the findings from other investigations from August to December. 2010 figures are from both audits and other investigations.
^2009 figures are for August to December only.