Are you labeled an “independent contractor”? Do you work for an employer that promised you the opportunity to own your own business? Did that employer help you get started in the “business,” but now tells you what to do every day? Does the company dictate what time you go to work and what price you get paid for your services or for the products you sell?
In that situation you likely don’t feel very independent, and in fact, your company may be skirting the law and may owe you money. You may not have the social security, Medicare, unemployment and workers’ compensation protections that you deserve.
- There are several kinds of jobs that are misclassified as independent contractors, but are treated like employees such as delivery drivers, temporary office workers, mall kiosk workers, landscape workers, and office custodians.
- In cases like this, corporations tell these workers they are independent, when under the law, they are not.
- The federal and state governments care about this issue because they can collect more taxes when companies do their work through employees, rather than independent contractors.
- A wage and hour lawyer will ask you about who controls the work, who has the financial control, and who controls the relationship.
What Is the Difference Between an Independent Contractor and an Employee?
There are several differences between employees and independent contractors. The U.S. Department of Health and Human Services describes these differences by breaking down the following categories:
- Employment laws
- Employees are covered by numerous state and federal employment and labor laws, while independent contractors are not.
- Hiring practice
- A potential employee normally fills out an application that is reviewed by a Human Resources department, followed by a job offer. The employer must also receive other information on the employee such as their birth date and citizenship status.
- Independent contractors are usually hired by the direct department that requires assistance and then is normally given a proposal and contract.
- Tax documents
- Employees fill out a W-4 that includes their name, birth date, social security number, and exemptions.
- Independent contractors provide their name, address, Taxpayer Identification Number, and certification about back up withholding on a W-9 form.
- The payer’s tax reporting requirements
- Employees report all of their income on a W-2 form, while independent contractors report payments of $600 or more in a calendar year on Form 1099.
- Reporting to other agencies
- Employees report for state and federal Unemployment Insurance.
- The value of work or contract
- An employee earns an hourly rate or salary. An independent contractor may be paid daily, weekly, or hourly that ends on a specific date, depending on the contract.
- When they’re paid
- Employee pay periods must remain the same unless formally changed. Independent contractors are paid by Accounts Payable and are not normally on payroll; the terms of the contract will determine when payments will be made.
What Kinds of Jobs Are Misclassified?
For example, delivery drivers are often set up as independent contractors, but they don’t feel very independent. The company that hires them may sell them a truck (financed by the company) and sell them a route (again, financed by the company). Then the company likely tells the drivers the hours they need to work, who their customers will be, what they need to charge for their product and how much of their product they need to put on the customers’ store shelves. The drivers end up working 50-60 hours a week, with no overtime, no benefits and no unemployment protection.
Temporary office workers, mall kiosk workers, landscape workers, and office custodians are other examples of workers who may get hired in large numbers and told that they are “independent,” when under the law they aren’t.
What Is the Test to See of You Are Being Misclassified as an Independent Contractor?
The federal and state governments care about this issue because they can collect more taxes when companies do their work through employees, rather than independent contractors. Also, governments don’t want their citizens left without benefits protections, because that puts the financial burden of disability on the taxpayers. The government and courts look at the actual relationship, regardless of what it may be called or what may be written in a contract.
Here are some questions that a wage and hour lawyer will ask you:
Who Controls the Work?
- How much training did you get to do your job?
- Whose equipment are you using?
- Does someone supervise the manner in which you do your work, or do you get to decide how it’s done?
- Is there an evaluation system for your work?
The more supervision and training you get, and the more direction you are given over how the job is done, the more likely you are actually an employee, and not an independent contractor.
Who Has the Financial Control?
- Did you make the initial investment in the business, or did the company do that?
- Do you get reimbursed for your expenses, or do you cover those yourself?
- Who controls whether you make a profit?
- How are you paid? Is it by the job, or on a regular schedule that is set by the company?
Who Controls the Relationship?
- Does the company have anything to do with when you take a vacation?
- Does you and the company expect that the relationship will continue indefinitely, or will it have a beginning and end?
- Are the services you are providing a key element of what the business does?
What You Are Losing If Your Job Is Misclassified
What you may be losing will be evaluated on a case by case basis but if you are misclassified as an independent contractor when you should be considered an employee, you could be losing the following:
- Overtime pay
- Pay for all hours worked
- Workers’ compensation coverage
- Unemployment insurance coverage
- Social security and Medicare benefits
What to Do If You Think You Are Misclassified
If you suspect that you are an independent contractor when you should be treated as an employee, you should call an employment lawyer, and especially a lawyer who does wage and hour work.
An attorney who is experienced in handling wage and hour cases can talk to you and get details about your job, and help you see whether the business you work for is following the law and paying you all the wages and benefits you deserve.