Worker misclassification

Treating a worker as an independent contractor when, under the relevant law, their working relationship makes them an employee or worker.

Example

Full-time contractors working only for one company, on its schedule and equipment.

Important

Reclassification can create back-pay, tax and benefit liabilities.

Related terms

• Contingent liability — A potential obligation that depends on the outcome of a future event, such as a lawsuit or regulatory decision.

Lessons that explain it

• The liabilities that are not on the balance sheet — Legal diligence looks for obligations the accounts may not show: workers who may legally be employees, pending or threatened litigation, and regulatory licences or rules the business depends on. (10 min)

All 578 terms in the Investing glossary