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What are the Signs and Legal Action to Employee Misclassification as an Independent Contractor?

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Employers always look for ways to cut costs – sometimes, even at the expense of their workers. In some cases, employers purposely misclassify their temporary or seasonal employees as independent contractors to avoid paying certain benefits.

If you’re misclassified as an independent contractor, you lose your claim on overtime pay, holiday pay, break hours, the right to join a union, health care insurance, disability compensation, and plenty more.

Characteristics of an Independent Contractor

It’s important to know the definition and nature of work of an independent contractor, so you’ll determine if you’re misclassified.

An independent contractor provides goods or services to an individual or business as a non-employee under the conditions of a contract. The employer determines only the outcome of the work, which means the contractor retains control over how they provide the service or goods. The employer doesn’t guide or supervise the contractor, unlike in an employer-employee setting. Independent contractors usually regard their employers as customers who are buying a certain product from them.

Use the Internal Revenue Service’s (IRS) measurement of independence and control if the above guide doesn’t match your case.

    • Behavioral: Does your employer dictate how you do your work? For example, if the company provides training, this means it wants you to follow the protocols the employees observe.
    • Financial: Who controls the operational aspects of your job? This pertains to factors like how you are paid, whether the company reimburses your expenses, and who provides the tools, among others.
    • Type of Relationship: Did you sign any contract? Are you receiving benefits? Will the relationship continue after you’ve fulfilled your task?

These conditions can help you identify attributes that indicate whether you’re misclassified. Weigh all these factors with the help of your employer to determine if you should be an employee or an independent contractor.

Taking Legal Action

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Talk to your employer first if you think they’ve misclassified you as an independent contractor. Explain why you think you should be classified as an employee instead. This will also give you the chance to hear your employer’s explanation of why he or she thinks you’re a contractor, instead of an employee. Seek employment law mediation services when the need arises, and settling the issue out of court would be best for all parties.

But if your employer refuses to cooperate, you can bring your concern up with the IRS. Detail the nature of your work and how your employer treats you in the IRS Form SS-8. The IRS will contact your employer and get the company’s version of the story in the form of an audit. The IRS will use this information to make its decision. This process can last for as long as six months, and then the IRS will either issue a determination letter or an informational letter.  The ruling the IRS gives in a determination letter is binding, which means your employer must strictly obey it.

It’s important to note that the ruling for employee classification is a case-by-case basis. It’s not enough to rely on absolute definitions; you also have to consider the context of your work arrangement to know your proper classification. The best way to approach this matter is to talk with your employer and to know your rights under the Fair Labor Standards Act, so you have the law on your side.

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