Worker Misclassification
Worker misclassification is treating a person who legally qualifies as an employee as an independent contractor. Penalties include back taxes, unpaid benefits, statutory severance, and fines that in some jurisdictions exceed 100% of paid compensation.
Misclassification tests vary by country but typically weigh control, exclusivity, integration into the business, provision of tools, and economic dependence. Long-tenured 'contractors' who work full-time for one client, use company tools, and follow company hours are the highest-risk profile. The correct remedy is to move them to employment via an entity or EOR, or restructure the engagement so it is genuinely independent under an AOR.
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Related terms
- Agent of Record (AOR)An Agent of Record contracts and pays independent contractors on a company's behalf, absorbing miscl…
- Employer of Record (EOR)An Employer of Record is a third-party organization that legally employs workers on behalf of anothe…
- Contractor ManagementContractor management is the process of onboarding, contracting, paying, and compliance-monitoring i…
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