What You Need to Know About Misclassification of Ohio Employees
All employees in Ohio can be categorized based on their roles and federal guidelines.
It can be hard to understand the different classifications of employees in Ohio. Here’s everything you need to know about the misclassification of employees in Ohio – from what is misclassification, to what are the consequences of misclassifying employees.
What are the categories of employment in Ohio?
Simply put, the two main categories are:
- Employees
- Contractors
The difference between the two can be dictated by three factors determined by the IRS:
- Financial
- Behavioral
- Type of Relationship
In Ohio, most employees can be either exempt or non-exempt. If an employee is non-exempt, he or she receives overtime benefits that are required by federal and state law. If the employee is exempt, that means that they are not subject to the overtime policy listed above. This is dictated by the Wages and Fair Labor Standards Act. The other category is contractors and subcontractors. Contractors are hired by an employer for a particular task, and unlike employees, use their own resources to fulfill the task. An employee, on the other hand, would use their employer’s resources to do their work. Essentially, the work an employee and a contractor might complete would be the same. However, where they derive the resources to complete such work differs.
What is Misclassification of Employees in Ohio?
The misclassification of employees occurs when the above categories are switched. If an employee is listed as an independent contractor, or if an independent contractor is listed as an employee, it is considered a misclassification of employees.
Related: Ohio PTO FAQs
How can Misclassification of Employees happen in Ohio?
One reason that employers would list employees as contractors are as it will benefit the employer. This is because independent contractors are not protected by the law the same way that employees are. Employers are able to give less regard to minimum wage and overtime compensation to contractors because of the Wages and Fair Labor Standards Act. Independent contractors are also exempt from workers’ compensation and unemployment insurance. This misclassification, with the intent of benefitting the employer due to the lack of regulation, is considered fraud.
How to Navigate the Misclassification of Employees in Ohio
- The first step to remedy a misclassification of employees in Ohio is to speak with the involved employer. They may be right in their classification, or their reasoning may give proof that they are misclassifying an employee.
- If an employer is not rectifying their mistake, then the next step is to go to the IRS. File the free IRS form SS-8.
- After receiving the form, the IRS will contact the employer to understand their classification system.
- If the IRS believes an employee is being misclassified, they will change the employee’s classification on their filing system.
It is important to keep in mind that an employee’s identity might not remain confidential in this process. When the IRS contacts an employer, the employee’s identity may be revealed to receive pertinent information.
Related: Ohio Wage Deduction Laws: Explained
What are the Consequences of Employee Misclassification?
Since misclassifying employees is considered fraud, it is considered even more so if the employer does fix the employment classification even after the IRS changes it. In Ohio, employee misclassification is punishable by law. The severity increases from unintentional to intentional misclassification. The IRS can start by making the employer pay all the employment taxes. If the misclassification was intentional to financially benefit the employer, they can be fined up to $1000 for every employee that they classified as a contractor. If the employer misclassified unintentionally or had good reasoning to do so, the IRS also has a lesser punishment known as the Classification Settlement Program which is less severe than the potential 35% revenue tax that the IRS may impose.
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If you or a loved one would like to learn more about Misclassification of Employees Ohio, get your free consultation with one of our Employment Attorneys in Ohio today!