What Happens If You Don’t Put ITIN Workers on Payroll?

Paying ITIN workers off payroll or as 1099s might feel like a small decision…

But it can open the door to much bigger problems.

Why Do Businesses Avoid Putting ITIN Workers on Payroll?

Most of the time, it comes down to confusion or convenience.

Business owners are told:

• “You can’t put them on payroll without a Social Security Number”
• “Just pay them as contractors”
• “This is how everyone does it”

So they move forward thinking it’s fine.

The problem is, the DOL doesn’t work that way.

What’s the Real Risk of Not Putting ITIN Workers on Payroll?

There isn’t just one risk. There are several—and they tend to show up all at once.

1. Can This Trigger a DOL Audit?

Yes—and this is often how it starts.

Most investigations begin with something small:

• A former employee files a complaint
• A comment is made during an unemployment claim
• Or your industry is targeted for enforcement

From there, it escalates.

• The DOL doesn’t just look at one issue
• They expand the review to your entire business
• They request records going back years

2. Is This Considered Misclassification?

In many cases, yes.

A common misunderstanding is:

“They have an ITIN, so they must be a contractor.”

That’s not how classification works.

The DOL looks at:

• Who controls the work
• Who sets the schedule
• Who provides direction and tools

If the worker operates like an employee, they must be treated as one.

If not, you may owe:

• Back wages
• Overtime
• Payroll taxes
• Penalties

And these costs can escalate quickly.

3. What Happens If a Worker Gets Hurt?

This is one of the biggest—and most overlooked—risks.

If a worker gets injured on the job, there’s a strong chance... workers’ compensation will deny the claim.

That means:

• Medical costs fall on you
• Lost wages fall on you
• Legal exposure falls on you

What felt like a simple workaround can turn into a serious financial problem overnight.

4. Will I Owe Back Taxes and Fines?

Yes—and it’s rarely a small number.

You may be responsible for:

• Unpaid payroll taxes
• Penalties and interest
• Unpaid overtime
• Legal and accounting costs

In real-world examples, business owners have faced tens or even hundreds of thousands of dollars in total exposure

5. Can This Affect My Business Long-Term?

Absolutely.

Beyond the financial hit, there’s:

• Time spent dealing with an investigation
• Stress and disruption
• Damage to your reputation
• Loss of employee trust

The consequences of non-compliance go far beyond money—they impact your business, your time, and your peace of mind

So What Should You Do Instead?

If someone is working under your direction, the answer is simple:

Put them on payroll as a W-2 employee.

For ITIN workers, that means:

• Using their ITIN for proper tax reporting
• Issuing a W-2 at year-end
• Including them in workers’ comp coverage
• Tracking their time accurately

The Bottom Line

Most payroll problems don’t start with bad intentions.

They start with small decisions that feel easier in the moment.

But when the DOL gets involved, those decisions are reviewed in detail—and the cost of fixing them is always higher than doing it right the first time.

 Use our instant price calculator to see how much it costs to put your ITIN workers on payroll.