HR Workforce Solutions
By Nonprofits, For Nonprofits
Question: What are the penalties and costs for misclassifying employees?
Answer: The answer will depend on a number of factors, such as how many employees are misclassified, how much extra money they would have been paid if properly classified, and whether or not lawyers or regulatory agencies get involved.
Generally, if an employee goes to the federal Department of Labor (DOL) and claims that they’ve been misclassified, the DOL will investigate. If the DOL determines that an employee—or entire group of employees—should have been paid overtime but wasn’t, the employee will be owed up to two years’ worth of unpaid wages (or up to three if the misclassification was “willful”). The organization may also owe the employee or employees liquidated damages equal to the amount of money owed. So, if an employee should have been paid $2,000 in overtime, the organization may owe them $4,000. The organization would also owe the government taxes on those wages, as well as interest on the taxes.
Most states also have their own minimum wage and overtime laws, and often an organization can be held liable under both federal and state law, meaning the employee would be owed additional damages for violations of state wage law. And if you are in a state with late payment penalties, the organization could owe additional damages for not having paid all wages by the time they were due. There’s also a very good chance that the organization will be held liable for attorney’s fees—both the organization’s and the employee’s.
On top of the costs mentioned above, there are potential federal civil penalties of $2,074 per violation (generally one penalty per misclassified employee), state penalties (which will vary), and in some cases the potential for jail time. Finally, statutory interest may immediately begin to accrue on the amount owed.
This Q&A does not constitute legal advice and does not address state or local law.
This Q&A was provided by Mineral, powering the UST HR Workplace. Have HR questions? Sign your nonprofit up for a FREE 60-day trial here. As a UST member, simply log into your Mineral portal to access live HR certified consultants, 300+ on-demand training courses, an extensive compliance library, and more.
Although nonprofits usually have exemptions from paying taxes, they must still file tax returns each year. Nonprofits file certain forms,...
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UST maintains a secure site. This means that information we obtain from you in the process of enrolling is protected and cannot be viewed by others. Information about your agency is provided to our various service providers once you enroll in UST for the purpose of providing you with the best possible service. Your information will never be sold or rented to other entities that are not affiliated with UST. Agencies that are actively enrolled in UST are listed for review by other agencies, UST’s sponsors and potential participants, but no information specific to your agency can be reviewed by anyone not affiliated with UST and not otherwise engaged in providing services to you except as required by law or valid legal process.
Your use of this site and the provision of basic information constitute your consent for UST to use the information supplied.
UST may collect generic information about overall website traffic, and use other analytical information and tools to help us improve our website and provide the best possible information and service. As you browse UST’s website, cookies may also be placed on your computer so that we can better understand what information our visitors are most interested in, and to help direct you to other relevant information. These cookies do not collect personal information such as your name, email, postal address or phone number. To opt out of some of these cookies, click here. If you are a Twitter user, and prefer not to have Twitter ad content tailored to you, learn more here.
Further, our website may contain links to other sites. Anytime you connect to another website, their respective privacy policy will apply and UST is not responsible for the privacy practices of others.
This Privacy Policy and the Terms of Use for our site is subject to change.
