The misclassification of employees as independent contractors is more common than you may believe. The Internal Revenue Service believes that employers misclassify workers as independent contractors due to error in many cases, though some do so to save money and reduce labor costs. It’s believed that millions of people are misclassified in the United States.
Misclassification is a serious problem for the employee specifically due to increased taxation, no right to overtime pay and ineligibility for unemployment insurance or workers’ compensation.
How is an independent contractor defined?
An independent contractor is a party that provides goods or services to a business under the terms of a contract. However, that contract should only dictate the outcome of the work, not how the contractor completes it. The employer should have no control over the individual except for whatever is included in a mutually binding agreement. The biggest difference between employees and independent contractors is that independent contractors treat employers as clients or customers, and they generally have more than one.
How do you know if you’re actually an employee of a company, not an independent contractor?
If you’ve been misclassified, you can sometimes tell by the company’s behaviors. For example, behaviorally, a company should not control or have a right to control the way an independent contractor does their work. An example of this would be if the company provides training and guidelines that the worker has to follow, which would indicate being an employee, not an independent contractor.
Another sign of being an employee is having employee-specific benefits, a long working relationship and if your work is a specific aspect of the business. For instance, if the company provides tutoring and you are a tutor, the likelihood is that you were hired for that purpose and provide that specific service. This could mean that you’re an employee, but every situation has to be assessed individually.
People who would like to have their classification reassessed can file form SS-8 with the Internal Revenue Service. This document does, however, inform the alleged employer of the document and the worker’s request.
You may be concerned about potentially losing your position if you ask for clarification about your position, which is why many people who have questions speak with their employers (or clients) first and then to an attorney before filing the document. This can help you learn more about protecting yourself before filing a potentially inflammatory document with the IRS.