A contractor classifies an independent subcontractor as an employee by mistake (or the reverse). The MOST significant financial risk of misclassifying a worker is:
Explanation
Misclassification makes the contractor liable for the payroll taxes that should have been withheld and paid — income tax, Social Security and Medicare, unemployment — plus penalties and interest, with Labor Code §226.8 adding $5,000 to $25,000 per wilful violation and workers' compensation exposure on top. Bonding capacity may suffer as a consequence, but only after the liability lands. A fictitious business name filing is a county registration and is untouched. And material prices are set by suppliers, not by how workers are classified.
Law Reference: Labor Code §226.8; IRC §3509This topic, taught in full in the CSLB Law & Business guide. CSLB Law & Business — Complete Study Guide (2026) — PDF + EPUB, $24.99 · 14-day refund →
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- A contractor is hiring its first employee. Which federal identification number must the business obtain from the IRS to report payroll taxes?
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