As part of the 2020 session of the Virginia General Assembly several new laws were enacted regarding the classification of employees and independent contractors. How a worker is classified, as an employee or as an independent contractor, has tax implications and other consequences to consider. Companies are obligated to withhold federal and state income taxes, Social Security, and payments towards Medicare from the employee’s wages. Employees often have other perks including health insurance, paid sick leave and vacation time, and retirement benefits. However, independent contractors are responsible for their own tax payments and typically do not receive the extra benefits that employees do.
What changes are there?
The new laws are designed to make it easier for workers to challenge how they are classified by employers while also placing penalties on employers who misclassify workers as independent contractors instead of employees. Some of the new laws took effect in July of this year, others won’t go into effect until January 1, 2021.
How this could affect you as an employee:
Chapter 203 , which took effect on July 1st of this year, assumes an individual who provides services in exchange for remuneration is an employee. Unless the person is shown to be an independent contractor under the IRS guidelines they are an employee and receive the benefits of being one. This chapter also provides individuals the right to bring a lawsuit against their employer if they feel that they have been misclassified as an independent contractor rather than an employee. The employer can be sued if they have knowledge of the misclassification of the worker in question.
The new chapter is there to help protect your rights as an employee and ensure that you are receiving all the pay, benefits, and contributions you should be entitled to by working as an employee rather than an independent contractor.
How this could affect you as an employer:
The first offense. For further offenses the penalties go up, second offense penalties are $2,500 per misclassified employee, and third and any subsequent offenses $5,000 per misclassified employee. There are two new chapters that are directed towards employers, Chapter 204 and 681.
Chapter 204, protects workers from employers taking retaliatory action against them if they have alleged that the employer has not classified them properly. It also ensures that the worker receives the required benefits or contributions that were lost due to the misclassification of the worker. This chapter took effect on July 1st, 2020.
Chapter 681, which will go into effect on January 1, 2021, regards penalties that an employer could face for failing to characterize workers correctly as employees. For those that fail to pay taxes, benefits, and any other contributions with respect to an employee can face civil penalties up to $1,000 for each misclassified employee for
Be mindful that you as an employer could very well end up being sued by “employees” if you misclassify them and in doing so fail to pay into the benefits and contributions they would be entitled to. The new chapters are meant to make it clearer for all parties involved.
Need more information?
The Greater Springfield Chamber of Commerce shared a brief overview of the new changes in their summer issue of News and Views, helpful for a quick read from another source. To see more detailed information on the new codes, visit Virginia’s legislative information system at https://lis.virginia.gov.
We here at LeMay and Company are also available if you need to review how your company is currently classifying workers. Or if you are a worker and feel you may be misclassified, we can discuss that as well. To make an appointment, use the form on our website which can be found here.