The employment landscape in the US is evolving with more workers working in the gig or freelance sectors. Due to these changes, employee misclassification is becoming more common. The associated risks can potentially cost nonprofit money and time.
As seen on David Sayles Insurance, nonprofits may misclassify employees to save upfront money but the effects can be detrimental. The nonprofit can face fines and punishments for failure to properly classify and treat an employee. The Internal Revenue Service takes these investigations seriously and can enforce fines and back pay to a misclassified employee.
Employees should receive certain benefits especially if the nonprofit is over a certain number of employees. Failure to provide these benefits can result in a lawsuit from the employee. Independent contractors are responsible for their own benefits, so the proper classification keeps the nonprofit from paying for them.
The nonprofit is responsible for covering part of the tax burden for employees and withhold money from their checks. However, independent contractors pay their taxes when they file personal income taxes. The state may have additional taxes applied to companies who misclassify employees.
The burden on nonprofits of employ misclassification cannot be ignored. Properly document any worker whether a volunteer, contractor or employee from the get-go. It can save the nonprofit substantial headache and money.