Beginning October 1, 2016, Maryland now imposes penalties on employers who misclassify employees as independent contractors. It is the employer’s burden to prove proper classification of an employee. As such, it is necessary for all employers to take the following steps:
- Identify all independent contractors
- Understand the criteria for independent contractor classification
- Determine if past independent contractor classifications are accurate
- Consider reclassification for employees currently misclassified as independent contractors
- Ensure proper future classification
While the specific requirements to be classified as an independent contractor are not explicitly outlined, some general guidelines include:
- An independent contractor provides goods or services independent of supervision; an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.
- An independent contractor is a professional whose goods or services are made available to the public and whose regular practice includes the active promotion of those goods or services.
Penalties imposed on employers guilty of knowingly misclassifying an employee as an independent contractor include:
- Civil Penalty of up to $5,000 per misclassified employee for the first violation
- Civil Penalty of up to $10,000 per misclassified employee for subsequent violations
In addition to civil penalties, an employer who has misclassified an employee as an independent contractor will be required to pay back unemployment for the period of misclassification. This payment is due within 45 days of first order to pay. Payments made after the 45 days will be subject to 2% interest beginning the date of first order to pay.
Professional consultants such as accountants or attorneys who advise an employer to misclassify an employee as an independent contractor may be subject to a civil penalty of $20,000.
If you have question or concerns, please contact us.Categories: Audit & Accounting