Civil Penalties For Misclassification
If an employer fails to properly classify an individual as an employee, it will, of course, be required to make the necessary unemployment contribution payments to the State, however, the Act also provides that the contributions will now be subject to an interest rate of two percent per month if the employer fails to pay the outstanding contributions within 45 days after the Maryland Department of Labor, Licensing and Regulation (“DLLR”) issues an assessment to the employer.
Additionally, if an employer knowingly misclassifies workers, the employer will be subject to a civil penalty of up to $5,000 per employee. For subsequent knowing violations, the DLLR may assess double penalties, that is, up to $10,000 per employee who is misclassified. Additionally, the Act provides that any individual who knowingly advises an employer to violate the Act will be subject to a civil penalty of up to $20,000. The Act defines “knowingly” as having “actual knowledge, deliberate ignorance, or reckless disregard for the truth.”
Beware Joint State Agency Efforts Against Misclassification
Maryland employers will likely be liable for far more than the penalties provided for under the Act. When the DLLR finds that an employer has misclassified employees as independent contractors, the DLLR will “promptly” notify the Workers’ Compensation Commission, the Insurance Administration, and the Comptroller. The DLLR’s actions, of course, will cause those other agencies to collaboratively bring the employer into compliance with workers’ compensation, insurance, and tax laws – a costly proposition for any employer.