Kansas Department of Revenue together with the Kansas Department of Labor
What is misclassification?
Frequently asked questions on misclassification
Report misclassification here
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Misclassification of Workers

Frequently Asked Questions

What is the misclassification of workers?
Misclassification of workers occurs when an employer incorrectly classifies workers as independent contractors rather than employees.

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Why is it important to correctly classify workers?
An employer has different legal, tax and financial obligations depending on how a worker is classified. For example, if a worker is classified as an employee, the employer is required to:

  • withhold income, F.I.C.A. (Social Security) and Medicare taxes from the employee’s wages;
  • pay F.I.C.A. (Social Security) and Medicare taxes in addition to the employee’s share;
  • pay unemployment taxes (which provides insurance coverage in case the worker is laid off;) and
  • buy workers compensation insurance (which provides insurance coverage in case the worker is injured on the job.

If a worker is classified as an independent contractor, the employer generally does not have those obligations and the worker is required to:

  • make quarterly estimated payments for income taxes, and;
  • pay self employment taxes.

An independent contractor is not entitled to unemployment compensation and, in many cases, will not receive workers compensation if injured on the job.

Most importantly, the intentional misclassification of workers is illegal and constitutes tax and insurance evasion. Employers engaging in this practice may be subject to significant penalties and fines.

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What is employment?
Employment is defined in K.S.A. 44-703, Chapter 44, Article 7. According to this statute, employment means:

  • Services performed by an individual for wages under any contract of hire is employment unless it is shown that:
    1. The individual has been and will continue to be free from control or direction over the performance of the services, both under the individual's contract of hire and in fact;

      AND

    2. The service is either outside the usual course of the business for which the service is performed or that the service is performed outside of all the places of business of the enterprise for which the service is performed.

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Who is an employee?
An employee is anyone performing services for an employer who controls what will be done and how it will be done by the worker. This is true even if the employee has freedom of action. What matters is the right of the employer to control the details of how the services are performed.

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Who is an independent contractor?
Independent contractors have an independent trade, business, or profession. They offer their services to the public and are generally not employees. However, whether they are employees or independent contractors depends on the facts in each case. The general rule is that an individual is an independent contractor if the employer controls or directs only the result of the work and not the means and methods of accomplishing the result.

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Who determines if a worker is an employee or an independent contractor?
The Kansas Department of Labor is responsible for investigating worker classification by employers.

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How does the Kansas Department of Labor determine if a worker is an employee or an independent contractor?
The right of control, whether or not exercised, is the most important factor in determining the relationship. An employer-employee relationship exists when an employer has the right to exercise control over the manner and means by which the individual performs services. The right to discharge a worker at will and without cause is strong evidence of the right of direction and control. The following factors should also be taken into consideration:

  • Is the one performing the services engaged in a separately established occupation or business?
  • Is the work usually performed without supervision in that locality?
  • What skill is required in performing the services and accomplishing the desired result?
  • Who supplies the tools, equipment, and place of work for the person doing the work?
  • Is the performance of services an isolated or continuous event?
  • What is the method of payment, whether by time, a piece rate, or by the job?
  • Is the work part of the regular business of the employer?
  • What is the extent of actual control exercised by the employer over the manner and means of performing the services?
  • Are the services performed for the benefit or convenience of the employer as an individual or for the employer’s business enterprise?
  • Can the worker make business decisions that would result in a financial profit or loss for the worker? Investment of the worker's time is not sufficient to show a risk of loss.

A written contract that claims to create an independent contract relationship is worthless if the practice of the parties shows that the employer retains the right to control the means and manner in which services are performed.

Generally an employer-employee relationship is found to exist when the work being done is an integral part of the regular business of the employer and the worker does not furnish an independent business or professional service to the employer.

Also see "What is employment" question for more detail.

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What difference does it make if workers are misclassified?
A business that intentionally misclassifies employees creates a number of costs for a variety of people. The costs avoided do not go away, they are simply borne by other people.

  • A worker misclassified as an independent contractor rather than as an employee suffers several adverse consequences. The worker is responsible for payment of income and self-employment taxes. Self-employment taxes are a higher cost for the worker because self-employment taxes include a portion of the F.I.C.A. (Social Security) and Medicare taxes that would have been paid by the employer.

    If laid off from a job, the misclassified worker must bear the financial consequences and is usually not entitled to unemployment compensation.

    If injured on the job, the misclassified worker is often not entitled to workers compensation benefits and must pay medical expenses and bear the financial burden of lost income.

  • Businesses that intentionally misclassify workers put other businesses at a competitive disadvantage.
  • In the end, honest Kansas taxpayers must pick up the remaining cost.

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How can I report employment misclassification?
You can report suspected misclassification to the Department of Labor and Department of Revenue on this website. The Departments will investigate all reports submitted via this website. Click here to report misclassification.

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What are the penalties that an employer maybe subject to if the employer misclassifies a worker?
Unemployment Taxes
K.S.A.44-117 states: (a)(1) Penalties on past-due reports, interest on past-due contributions, payments in lieu of contributions and benefit cost payments. Any employer or any officer or agent of an employer, who fails to file any wage report or contribution return by the last day of the month following the close of each calendar quarter to which they are related shall pay a penalty as provided by this subsection (1) for each month or fraction of a month until the report or return is received by the secretary of labor. The penalty for each month or fraction of a month shall be an amount equal to .05% of the total wages paid by the employer during the quarter, except that no penalty shall be less than $25 nor more than $200 for each such report or return not timely filed.

Contributions and benefit cost payments unpaid by the last day of the month following the last calendar quarter to which they are related and payments in lieu of contributions unpaid 30 days after the mailing of the statement of benefit charges, shall bear interest at the rate of 1% per month or fraction of a month until payment is received…

K.S.A. 44-719 states:
(e) Any employer or person who willfully fails or refuses to pay contributions, payments in lieu of contributions or benefit cost payments or attempt in any manner to evade or defeat any such contributions, payments in lieu of contributions or benefit cost payments or the payment thereof, shall be liable for the payment of such contributions, payments in lieu of contributions or benefit cost payments and, in addition to any other penalties provided by law, shall be liable to pay a penalty equal to the total amount of the contributions, payments in lieu of contributions or benefit cost payments evaded or not paid.

Worker Compensation
K.S.A. 44-5,120 states: (d) Fraudulent or abusive acts or practices for purposes of the workers compensation act include willfully, knowingly or intentionally: (2) misrepresenting to an insurance company or the insurance department, the classification of employees of an employer, or the location, number of employees, or true identity of the employer with the intent to lessen or reduce the premium otherwise chargeable for workers compensation insurance coverage.

Essentially, it is considered a fraudulent act to represent employees as a different classification for the purpose of obtaining a cheaper premium.

With regard to penalties, K.S.A. 44-5,120(g) provides for a couple different options:
(g)(1) Payment of a monetary penalty of not more than $2,000 for each and every act constituting the fraudulent or abusive act or practice, but not exceeding an aggregate penalty of $20,000 in a one-year period.
(g)(2) Redress of the injury by requiring the refund of any premiums paid by and requiring the payment of any moneys withheld from, any employee, employer, insurance company or other person or entity adversely affected by the act constituting a fraudulent or abusive act or practice.
Based on the two penalty provisions listed above, an employer potentially could be charged according to the number of times he misrepresents an employee and/or the amount of premium that should have been paid had the employees been classified correctly. Determining what penalties to charge depends on the facts of each case.

Withholding Tax
Generally, every employer required by federal law to withhold upon wages pursuant to the federal internal revenue code shall, whenever the wage recipient is a resident of Kansas or the wages are paid on account of personal services performed in Kansas, withhold and deduct from such wages an amount to be determined in accordance with K.S.A. (2005 Supp.) 79-32,100d, and amendments thereto.

Employers who fail to withhold upon their employees' wages or otherwise fail to comply with the provisions of the Kansas Withholding and Declaration of Estimated Tax Act shall be subject to the penalty provisions set forth in K.S.A. 79-3228 and 79-32,107, and amendments thereto. Such penalties range from 1% per month of the unpaid balance of tax due up to 100% of the unpaid balance of tax due, plus interest on the unpaid tax at the rate established by law.

If you are seeking more specific information regarding Withholding tax penalties and interest click here.

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