It is increasingly common for business owners to meet workflow needs with the help of independent contractors. Since employers avoid paying benefits and taxes for independent contractors, these workers can be beneficial to the company’s bottom line. For this reason, as many as 30% of employers purposely misclassify workers as contractors. If this is true for you, you are treated as an employee without receiving the valuable benefits that should accompany employee status.
About Employer Misclassification
Classified as an independent contractor, you are responsible for paying your own Social Security and Medicare taxes, which saves the business the obligation to pay half these costs for you. In addition, you are ineligible for unemployment benefits if you are laid off and cannot collect workers’ compensation if you are hurt on the job. You miss out on employer-sponsored healthcare coverage, and you forfeit your legal entitlement to wage and hour protections provided to employees by the government.
Example of Misclassification as Contractor
An example of a misclassified “independent contractor” might be someone who is regularly expected to work extended rush hours for tight deadline projects – hours that would cost the company quite a bit in overtime wages if there was an employee/employer relationship. This contractor’s status may or may not be a misclassification, though, depending upon the specific circumstance. It is often difficult for the average worker (and employer) to tell, since legal guidelines for the contractor/employee distinction are complex and easy to misinterpret.
Contractor vs. Employee
As explained by the Internal Revenue Service (IRS), the most important distinction between an employee and independent contractor is the degree of control exercised over the worker’s time and work procedures. If the employer dictates the details of what you will do and when, where, and how you will do it, you could be considered an employee.
Regardless of the amount of overall freedom you are allowed, the following factors point to potential employee status:
- The employer directs and controls your work with detailed instructions and procedural training.
- Your execution methods are evaluated (instead of just the end product).
- The business provides you with tools and supplies.
- The employer reimburses you for your project-related expenses.
- You work solely for the employer with a relationship that continues indefinitely.
- You are paid by the hour.
- There is no written contract in place.
- Your work is part of the firm’s core business.
There are two categories of workers, “statutory employees” and “statutory nonemployees,” that inhabit a tax-specific gray area, according to the IRS. This includes some types of delivery drivers, life insurance agents, salespeople, real estate agents and household companion sitters. If you are a statutory employee, you are an independent contractor who has taxes withheld from your pay; as a statutory nonemployee, you may be treated similarly to an employee but pay your own Social Security and Medicare taxes.
If You Believe You Are a Misclassified Employee
If you wish to question your classification as an independent contractor, you can benefit from legal counsel and representation. A business owner who misclassifies an independent contractor may be subject to penalties and repayment of back taxes. Additionally, you may have a labor law case and may be owed reimbursement for losses.
If you believe you are an employee instead of an independent contractor, you can report the matter to the IRS. Filing an SS-88 form will prompt a review to determine your official status. If you need help, please don’t hesitate to contact Feldman Williams. Our employment attorneys represent workers who are wrongly classified, assisting with worker’s comp and labor law cases.