Part of owning or operating a business in California and anywhere in the world is dealing with employees. Every business no matter how small or how large employs someone. What about an entrepreneurial business or a sole contractor? Even a business with one person has an employee, even if you are the only one.

Determining what job positions you will fill, how many employees you will have, what their job duties will be, how their hours will be scheduled and a number of other factors can make or break a business. Misclassification is a large problem in this nation and it can cost everyone involved. While media sources make it seem like it is a “big bad employer” taking advantage of minimum wage workers, it certainly isn’t always the case. A large number of misclassification cases are based upon unintentional, inadvertent mistake or lack of knowledge.

A study was recently released that took a look at data in Texas. Even though this study was conducted in another state, it is a micro-example that can be applicable to any other. In this jurisdiction, the study found that there were approximately 300,000 employees who were misclassified. The study went further to find that it cost the state approximately $54 million and the federal government about $1.06 billion, due to lost unemployment or income tax revenue.

Some might not have a huge interest in how much it costs the government at this point or wonder why it matters to them; the answer is that costs are shared. Your taxes help cover the cost on the grand scale, but more personally, state and federal agencies hand down stiff penalties for misclassification issues. When an employee files a lawsuit, it costs thousands or even millions to pay for the attorney fees, damages for unpaid wages, penalties and even punitive damages in some cases.

Best way to avoid this issue? Get the advice of an experienced professional and protect your own and the interests of your business.

Source: The Texas Tribune, “Report: Employee Misclassification Costs State Millions,” Julian Aguilar, Jan. 29, 2013