Misclassifying a worker is one of the most expensive ordinary compliance failures a business can be carrying, and it rarely stops at one person. When an agency finds one misclassified contractor, they generally go and look at the whole category.
The liability stacks up. Unpaid employer payroll taxes with penalties and interest on top. Unpaid overtime, if the person would have been non-exempt. Benefits they should have been eligible for. And in some states, liquidated damages as well. Look-back periods commonly run three years.
What makes this urgent right now is that several states have moved to an ABC test instead of the older multi-factor common law analysis. Under an ABC test your worker is assumed to be an employee unless you can prove all three prongs. And prong B, that the work sits outside the usual course of your business, is one that plenty of long-standing arrangements simply cannot meet.
Picture the usual setup. Someone you took on years ago now works full-time hours, only for you, doing work that’s central to what you sell, on your systems, to your schedule. Every one of those facts points at employment. And how long it’s been going on is evidence against you, not a defence.
None of this means contractor relationships are somehow improper. A genuine independent contractor, running their own business, working for several clients, deciding their own methods, carrying real financial risk, is completely legitimate. The problem is the arrangements that began that way and then quietly drifted.
What’s worth doing is an honest look at each long-standing arrangement against the tests that apply where the work happens. Where a position won’t hold up, there are ways to fix it that limit how far back the exposure reaches. But those only exist while it’s still your idea, not the agency’s.