Worker Misclassification and Nonprofits

Date Posted: 11/27/2017
Last Updated: 5/30/2024

The N.C. General Assembly is considering a bill (H.B. 482) that would create new penalties for nonprofits and businesses that improperly classify their workers as independent contractors rather than employees. Nonprofits that misclassify their employees and fail to provide benefits such as workers’ compensation or unemployment insurance benefits could face fines ($1,000 per misclassified worker) and could be barred from state contracts for five years. The bill would give nonprofits and businesses a year to voluntarily self-report worker misclassification to avoid penalties. The bill’s eight-factor test for determining whether a worker is an independent contractor, which is based on longstanding North Carolina case law, is slightly different from the IRS test that looks at behavioral control, financial control, and relationship of the parties. The bill underscores the importance of nonprofits regularly reviewing the employment classification of their workers. If H.B. 482 becomes law, the Center will provide resources to help your nonprofit comply with both state and federal worker classification laws.

The Center has provided legislators with suggestions for technical changes that could avoid unintended consequences for nonprofits. Specifically, the original version of the bill used a definition of "employee" that could include uncompensated nonprofit board officers. Without a minor clarifying change, this could create penalties for nonprofits that don't treat board officers as employees for the purpose of workers' compensation.