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What is employee misclassification in Virginia?

  • By: lipplaw
    Published: May 19, 2023
image of employee misclassification

In response to misclassification issues, Virginia has enacted a new law that assumes all workers are employees, requiring employers to demonstrate otherwise if they seek to classify workers as independent contractors. This legislation aims to tackle the misclassification of employees as independent contractors, often done to dodge taxes and employee benefits. But what is employee misclassification in Virginia?

Worker misclassification occurs when employers incorrectly classify workers as independent contractors rather than employees. This can happen intentionally or unintentionally, but the result is that the worker is denied legal protections and employment benefits, and the government doesn’t receive the appropriate amount of taxes.

With the new changes in Virginia employment classification law, employees can bring a private civil action against their employers. Employers must consult employer-focused labor lawyers to classify workers accurately per IRS guidelines to avoid civil penalties.

What factors determine whether a worker is an employee or an independent contractor?

The payment method can indicate whether the IRS classifies a worker as an employee or an independent contractor. Workers paid on a monthly, weekly, or hourly basis are more likely to be considered employees, while those compensated based on the completion of a specific job, project, or assignment or through commissions or fees are more likely to be classified as independent contractors.

Aside from this, the IRS has 19 more considerations that guide their determination:

  • Instructions: Employees must comply with instructions regarding when, where, and how they should work, whereas independent contractors use their methods to complete their work.
  • Training: Employees receive training from the employer, while independent contractors source and pay for training themselves.
  • Integration: Employee services are integrated into business operations since they are important to the business, indicating that the employer directs and controls the worker.
  • Services rendered personally: If an individual renders services personally, they are employed. In this case, the employer is concerned with the methods and results. The employee usually cannot delegate their responsibilities, but independent contractors can.
  • Hiring, supervising, and paying assistants: Employers generally hire, supervise, and pay employees, while independent contractors are responsible for hiring, supervising, and paying assistants under a contract.
  • Continuing relationship: A continuing worker-employer indicates an employer-employee relationship, even if the intervals are irregular.
  • Set hours of work: Workers whose employer sets working hours are generally employees, while independent contractors set their schedules.
  • Full-time requirement: Employees typically work full-time for their employers, while independent contractors work for whomever they choose when they choose.
  • Work done on premises: When the employer controls where the work is done, the worker is an employee. Independent contractors usually may perform work wherever they desire.
  • Order or sequence set: Workers that complete tasks or services in specified steps set by the employer are employees. Independent contractors can work or render services in any order they choose.
  • Oral or written reports: A requirement for regular or written reports to the employer indicates a degree of control by the employer.
  • Payment of expenses: If the employer caters to the worker’s travel and business expenses, the worker is an employee.
  • Furnishing of materials and tools: If the employer provides significant materials, tools, and other equipment, the worker is an employee.
  • Significant investment: If workers have invested in the facilities where they work, they might be independent contractors.
  • Profit or loss: If the worker can make a profit or suffer a loss, the worker may be an independent contractor.
  • Working for multiple firms: If a worker simultaneously renders services to multiple unrelated firms, the worker may be an independent contractor.
  • Availing services to the public: If a worker makes their services available to the general public regularly, the worker may be an independent contractor.
  • Right to discharge: If an employer reserves the right to discharge a worker, it indicates the worker might be an employee.
  • Right to terminate: If the worker can quit work without incurring liability, the worker is generally an employee.

Why do employers try to categorize workers as independent contractors?

Employers often categorize workers as independent contractors because it can be a cost-effective way to get work done without incurring the expenses associated with employees. When workers are classified as independent contractors, employers are not responsible for paying payroll taxes, unemployment insurance, workers’ compensation insurance, or providing employee benefits such as health insurance, retirement plans, and paid leave.

Independent contractors are also not entitled to overtime pay or other protections afforded to employees under the Fair Labor Standards Act (FLSA) and other employment laws.

Additionally, employers do not have to provide training, promotions, or job security for independent contractors. They can also avoid the administrative burden of managing employee schedules, timesheets, and other employment-related paperwork. By classifying workers as independent contractors, employers have more flexibility in managing their workforce and can save money on labor costs.

What types of damages can an employee receive under the new employee misclassification law?

The Virginia misclassification statute creates a private right of action for misclassified workers, making it possible for them to recover:

  • Damages for lost wages
  • Interest on unpaid wages
  • Payment for rest breaks or missed meals
  • The value of benefits not received
  • Reasonable attorneys’ fees

For the first time, this new law creates a right to sue based on misclassification only, meaning that an employee need not show that they are owed back overtime or the value of any lost benefits.

Moreover, because the law presumes that all workers are employees, the employer must show that a plaintiff worker was properly classified as an independent contractor. Thus, a disgruntled worker formerly classified as an independent contractor can file suit against a previous employer much more easily with the expectation of real damages if the worker prevails.

Every worker in Virginia is legally presumed to be an employee unless the employer shows otherwise that they shouldn’t be classified as one.

This is to combat misclassifying workers as independent contractors to avoid paying more taxes and paying employees benefits.

A misclassified employee can sue their employer in court and ask for attorneys’ fees under the misclassification statute, Virginia Code Section 40.1-28.7:7.

If the court finds that misclassification occurred, the employer will have to pay the employee what they would otherwise have received if they were properly classified as an employee, such as medical expenses that otherwise would have been covered by insurance, wages, and other benefits, along with the employee’s attorney’s fees and costs.

What are the penalties for employee misclassification in Virginia?

If an audit reveals an employer violates misclassification laws, it is fined $1,000 per misclassified worker on their first offense. They receive $2,500 and $5,000 fines per misclassified worker for their second, third, and subsequent offenses.

Virginia’s misclassification law states that misclassification violations discovered within 72 hours are treated as single offenses. So, if 25 misclassified employees are determined in a single audit, it counts as a single offense.

Moreover, under Section 58.1-1902 of the Virginia Code, an employer with a misclassification violation is barred from receiving government contracts for a year on the first offense and three years on subsequent offenses.

Talk to an experienced Virginia employment law attorney

If you are an employer in Virginia, it is essential to seek the guidance of an experienced employment law attorney to ensure compliance with worker classification laws and regulations.

The Lipp Law Firm, PC attorneys can provide you with the necessary information on legal requirements for worker classification, conduct audits of your worker classifications, create independent contractor agreements, and provide legal representation if needed in the event of a misclassification claim.

Taking the proactive step of working with The Lipp Law Firm, PC helps you manage your legal risks and protect your business from potential legal and financial consequences of noncompliance with employment laws and regulations. Contact a Lipp Law employment attorney today at (703) 896-7704 to ensure your business is compliant with Virginia’s employment laws and regulations.

Kathryn Megan Lipp

Katie dedicates her practice to employment separation guidance.
Based on her successful employment litigation practice...Read More