--- title: "Correct a worker classification error after payroll has run" slug: "correct-a-worker-classification-error-after-payroll-has-run" updated: 2026-07-06T19:39:33Z published: 2026-07-06T19:39:33Z canonical: "help.wrapbook.com/correct-a-worker-classification-error-after-payroll-has-run" --- > ## Documentation Index > Fetch the complete documentation index at: https://help.wrapbook.com/llms.txt > Use this file to discover all available pages before exploring further. # Correct a worker classification error after payroll has run ## Overview *Worker classification* in Wrapbook determines how a worker is taxed and paid — either as an **Employee (W-2)** or a **Loan-Out (Company)**. Misclassifying a worker can result in incorrect tax withholding, processing fees, and year-end tax reporting errors. This article covers what to do if you discover a misclassification after a worker has already been onboarded and paid. *Worker classification has legal and tax implications. If you're unsure whether a worker was correctly classified, consult your payroll accountant or legal counsel before requesting a correction.* ## Before payroll has been run: change it yourself If you catch the misclassification before the worker's first payroll, you can correct it yourself. For step-by-step instructions, see [Worker classification](/v1/docs/worker-classification#change-worker-classifications). ## After payroll has been run: contact Wrapbook Support **Worker types cannot be changed directly after a worker has been paid.** A correction requires Wrapbook's Operations Team to process a payment reversal and re-run payroll under the correct classification. **To request a post-payment classification correction:** 1. [Contact Wrapbook Support](/v1/docs/how-to-get-help-using-wrapbook) with the following information: - Worker name and project - Incorrect classification (what they were set up as) - Correct classification (what they should have been) - Dates and amounts of affected payroll runs 2. *Wrapbook's Operations Team* will review and advise on next steps, which typically include: - A reversal of the incorrectly processed payroll - Re-processing under the correct classification - Recalculation of applicable taxes, fees, and withholdings **Important:** Do not run additional payroll under the incorrect classification while waiting for a correction. [Contact Support](/v1/docs/how-to-get-help-using-wrapbook) before running your next payroll cycle if a misclassification is discovered. ## What happens to existing tax withholdings? The impact on tax withholdings depends on the direction of the misclassification: ### W-2 (Employee) processed incorrectly as Loan-Out - W-2 employees have federal and state income taxes, Social Security, and Medicare withheld. If the worker was paid as a Loan-Out (no withholding), these amounts were not withheld. - A payroll reversal and re-run will apply the correct W-2 withholdings. The worker may owe taxes on the previously un-withheld amounts. ### Loan-Out processed incorrectly as W-2 - If a Loan-Out was processed as a W-2 employee, incorrect withholdings (FICA, federal/state income tax) were applied. A reversal will refund these. - The worker will receive a 1099-NEC (not a W-2) for the corrected period ### Will corrected tax documents be issued? If the misclassification occurred in a prior tax year: - A **corrected W-2 (Form W-2c)** may need to be issued for amounts that were incorrectly reported as W-2 wages - A **corrected 1099-NEC** may need to be issued if Loan-Out payments were mis-reported Wrapbook's Operations Team will advise on whether corrected year-end tax forms are needed as part of the correction process. If the misclassification occurred within the current tax year and is corrected before year-end, amended year-end forms are typically not required — the correction will be reflected in the worker's final annual figures. ## How to avoid misclassification at onboarding Misclassifications most often happen when the wrong classification is selected during the worker invitation step. To prevent them: - **Confirm the worker's type before inviting them** — ask whether the worker will be paid as an individual (W-2) or through a corporate entity (Loan-Out/Company) - **Loan-Outs require specific documentation** — a valid EIN, legal business name, and confirmation of S-Corp, C-Corp, or qualifying LLC status. Do not set a worker up as a Loan-Out unless this documentation is confirmed. - **When in doubt, default to W-2** — it is easier to convert an incorrectly classified W-2 to a Loan-Out before payroll than to reverse a payment after the fact For a full explanation of classification types, see [Worker classification](/v1/docs/worker-classification). A withholding is an amount deducted from a paycheck that is held for payment to another entity. Common examples of withholdings include federal and state taxes, and union dues. Acronym for Federal Insurance Contributions Act; the employer's and employee's matching contributions to the Social Security Act. An IRS form by which specific income (such as non-employee compensation, royalties, etc.) is reported to the federal government. Equivalent to a W-2 for independent contractors where remuneration is not being paid by the employer. Employer Identification Number: Federal tax identifier used to identify a business An S Corporation (S-Corp) is a special type of corporate structure that passes corporate income, losses, deductions, and credits through to its shareholders for federal tax purposes. C Corporation (C-Corp) is a standard corporation structure where the business is taxed separately from its owners. The key difference between C-Corps and S-Corps is in how they are taxed - while S-Corps pass income through to shareholders, C-Corps face separate taxation at the corporate level.