EOR Compliance & Risk: FAQs

Intentional misclassification can trigger IRS penalties of up to 20% of wages plus 100% of unpaid FICA taxes, on top of back taxes and interest - and in serious cases, criminal charges (MBO Partners, 2026). The Department of Labor separately enforces Fair Labor Standards Act violations with back-wage and liquidated-damages remedies that can double the payout owed. Class action settlements for worker misclassification and related employment disputes exceeded $40 billion across industries in 2024 (HR Dive, cited by MBO Partners).

Yes. Regulatory bodies across the US, EU, UK, and Asia-Pacific are intensifying enforcement. Notable cases include Uber and its Rasier LLC subsidiary paying roughly $100 million in unpaid state payroll taxes and penalties after misclassifying nearly 300,000 drivers, and Spain's Glovo being fined €79 million for misclassifying delivery riders as contractors. State-level enforcement in the US is often stricter than federal - Colorado, for example, allows penalties up to $50,000 for a repeat willful violation not corrected within 60 days.

A properly structured Employer of Record employs the worker directly as a W-2 (or local equivalent) employee under its own legal entity, so the worker's status is verified employment from day one rather than a contractor arrangement that could later be challenged. This shifts statutory compliance, tax withholding, and benefits administration onto the EOR, removing the client company's direct misclassification exposure entirely - as long as the EOR itself is properly licensed and compliant in that jurisdiction.