Employee misclassification occurs when employers fail to properly classify a worker as either an independent contractor or an employee. The identification of a worker as either an employee or an independent contractor can have a significant effect on the pay and benefits that the person receives.
Employee misclassification occurs when an employer treats a hired employee as an independent contractor or vice versa. In general, a full-time employee may be entitled to benefits including:
- Overtime pay that should be at least 1.5 times their regular hourly pay;
- Hourly pay that is at least as much as the federal minimum wage;
- Eligibility for worker’s compensation.
In addition, employees are often entitled to receive employer-provided fringe benefits such as health insurance and retirement savings plans.
An independent contractor is generally not entitled to receive these benefits from the businesses to which they provide their services unless provisions stating otherwise are included in their contract.
What Is the Difference Between an Employee and an Independent Contractor?
According to the guidelines provided by the Internal Revenue Service (IRS), an employee includes any person who performs services for an employer in a situation in which the employer can control where the work is to be done as well as how it is done.
An independent contractor, in contrast, is defined as working in a situation where the employer can control the result of the work but not the method or means by which the work is completed. In other words, an independent contractor has more freedom to complete their work in their own way.
It may sometimes be difficult to distinguish between an employee and an independent contractor, and the difference may be viewed as somewhat subjective. When analyzing cases of employee misclassification, the IRS and other authorities will employ what is called the 20-factor test. This test assists them in determining a worker’s proper classification.
This test includes the following factors:
- Instructions: Independent contractors direct themselves, whereas employees are given instructions;
- Training: Employees are told to do things by a specific method or procedure, whereas independent contractors are not;
- Integration: The services of employees are integrated into the company’s operations, not separate from them;
- Services rendered personally: Independent contractors often delegate duties to subcontractors rather than doing the work themselves;
- Hiring, supervising, and paying assistants: Independent contractors can hire their own assistants;
- Continuing relationship: An employee’s relationship with the company is ongoing, whereas an independent contractor may never work for the same employer twice;
- Set Hours of Work: independent contractors make their own schedules
- Full-time work: Employees generally work full-time, whereas independent contractors often work part-time;
- Work done on the employer’s premises: Employees work on-site, whereas independent contractors can work wherever convenient or necessary;
- Order or sequence of work to be done set by the employer: Independent contractors can decide how work is done so long as it is finished according to the contract, whereas employees must complete their work according to the direction of their employer;
- Oral or written reports: An individual who must report to their employer on a regular basis is an employee;
- Payments: Employees are paid biweekly or monthly, whereas independent contractors are paid by the job completed;
- Expenses: Employees’ business expenses are often covered by the company, whereas independent contractors must cover their own;
- Tools and materials: An independent contractor will usually provide their own tools and materials needed to complete their work, whereas an employee will use their employer’s;
- Investments: Independent contractors make personal investments in equipment, advertising, etc., whereas employees use equipment that belongs to their employer;
- Profit or loss: An employee’s work will not generally change their pay, while an independent contractor’s may;
- Works for more than one person or firm: If an individual works for more than one person for a firm, this is a good indicator that they are not an employee;
- Services available to the general public: An independent contractor makes their services available to the general public;
- Right to fire: An independent contractor cannot generally be fired unless they have not performed up to the standards of their contract or according to the terms of their contract. In contrast, employees can be fired for whatever reason or no reason at all;
- Right to quit: An employee can quit at any time, whereas an independent contractor is legally obligated to finish whatever work was agreed upon.
What Are Some Common Employee Misclassification Disputes?
There are several different common types of employee misclassification disputes, including the following:
- Wages, especially the method and timing of payment, such as regular wages vs. payments only after completion of a project;
- Overtime pay disputes;
- Paid sick leave, medical leave, and disputes relating to other other benefits of employment;
- Workers’ compensation; and
- Income tax and Social Security Withholdings.
Depending on the nature of a dispute, a lawsuit may be required to resolve the issue. This may lead to an award of damages, often used to compensate the worker for lost wages, benefits, and other economic losses that a worker suffers.
In the alternative, the worker may be required to return benefits or wages if they were not, in fact, entitled to them. Certain disputes may require investigation from a government agency such as the Wages and Hour Division (WHD) of the United States Department of Labor.
How Much Can I Sue an Employer for Misclassification?
It can be helpful to talk to an employment contract attorney for any employment misclassification issues a person may be facing. Employee misclassifications can lead to certain legal problems. One reason is that dealing with the IRS is different if one is an employee as opposed to an independent contractor.
An independent contractor would need to make their own tax withholdings and forward them to the IRS throughout the year, whereas an employee relies on their employer to do this.
If a person is a worker who has been misclassified, they may suffer significant losses. An employee misclassification lawyer can review a person’s situation and determine if they have been misclassified as an employee or independent contractor. They can also assist them with filing a lawsuit to resolve the issue, if necessary.
If a person is an employer, a lawyer can help them make sure that their employees are properly classified. There are requirements for each type of worker, and failure to comply with those requirements can result in significant consequences. A lawyer can also help an employer negotiate a dispute with an employee or a contractor, depending on the circumstances.
Do I Need a Lawyer for Help With an Employee Misclassification Lawsuit?
It is essential to have the help of an employment attorney for any employment misclassification issues you may have.
If you think you have been misclassified, LegalMatch.com can connect you to a lawyer who can review your situation. They will determine if you were misclassified as an employee or independent contractor and assist you in trying to resolve the issue, if that is the best way forward.
If you are an employer, having the assistance of a lawyer can help you properly classify your employees. Your lawyer can also help you defend a lawsuit if you are sued by a worker or government agency and represent you at any court appearance.