As 2024 begins, it’s important to address a key piece of the employment puzzle that will need to be tackled: worker misclassification. With the approaching tax season, it is crucial to make sure that workers are classified correctly, especially when partnering with a staffing company.
One Mistake You Can Not Make as an Employer in 2024
What is Worker Classification?
Worker classification determines how employees are paid, what benefits they receive, and other important factors. There are two classifications that workers fall under.
The first and most common classification is W2. W2 workers are employees who have specific schedules, responsibilities, and access to a variety of benefits courtesy of their employer. If an employer classifies their employees as W2, that means the employer is responsible for reporting the employees’ wages and other compensation via the W2 tax form.
The other classification is 1099, also known as independent contractors. 1099 employees set their own schedule, determine their own responsibilities, and do not receive any benefits from their employer. As independent contractors, they agree to complete a certain project by a certain date but get to decide when they do the work. 1099 employees’ relationship with their employer ends when their work has been completed.
Staffing companies can classify their employees as either W2 or 1099. If a staffing company classifies their employees as W2, then the staffing company is responsible for their employees’ worker insurance coverage, unemployment, and taxes. If a staffing company classifies their employees as 1099, then the responsibility for insurance, unemployment, and taxes falls to the employees.
How Does Worker Misclassification Happen?
No staffing company intentionally sets out to misclassify their employees. Misclassification results from a lack of information, a lack of interest in understanding what’s correct, and the belief that not having to pay worker’s insurance or benefits will save the staffing company and employer partner money.
Ultimately, incorrect classification does not save the staffing company nor the employer partner money. Misclassification lawsuits cost much more than paying the employee benefits and insurance in the first place.
Why Does Classification of W2 and 1099 Employees Matter?
Simply put, employee misclassification can cost both the employer and the staffing company millions of dollars. Worker misclassification can result in hefty fines and potential lawsuits.
For example, if an employee gets injured at work and has been incorrectly classified as 1099 instead of W2, the employer and the staffing partner can be held accountable for the employee’s medical coverage and be fined for incorrect classification.
Since staffing companies assume responsibility for their employees, they bear the brunt of correct classification. If an employer is using a staffing company to hire employees, the staffing company is liable for the employees they provide and anything that may happen to them while working. As an employer, it is crucial to partner with a staffing company that is trustworthy and is knowledgeable about proper employee classification.
How Can an Employer Avoid Worker Misclassification?
The best way for an employer to avoid the issue of employee misclassification is to partner with a staffing company they know they can trust and that is known to be responsible. LGC has never had an issue with misclassification.
Recently, a new ruling came down from the Department of Labor about classification of independent contractors. The ruling makes it more difficult for employees to be classified as 1099. Now, independent contractors will not qualify for the same minimum wage or overtime protections as W2 employees. Since 2003, all LGC employees have been classified as W2 employees. We take care of insurance, benefits, and taxes, so that our partners can focus on hiring the right employees and driving their business forward.
LGC prides itself on having a deep understanding of worker classification. We have a proven track record of supporting our partners with great employees that are correctly classified. When you partner with LGC, you can rest assured that your business will be able to focus on its daily operations without fear or risk of incorrect classification.