The Importance of a Proper Employment Classification
When providing a service to a business, the question of whether those services are provided as an employee or as an independent contractor is more than a matter of semantics. Employers have a strict duty under state and federal law to withhold income taxes while also paying into Social Security and Medicare on behalf of their employees, while no such obligation exists with regard to independent contractors. When an employee is misclassified as an independent contractor it can create an undue burden on several fronts. Not only will misclassified workers receive a large bill for taxes which went unpaid the previous year, unemployment and Workers’ Compensation benefits are unavailable to them in the event of a layoff or workplace accident.
There is recourse, however, for employees who have been misclassified an independent contractors. Whether a misclassification has occurred turns on a complex set of legal factors, including how workers receive and complete tasks.
Key Differences Between Employees and Independent Contractors
An independent contractor generally enjoys far more autonomy than an employee. Independent contractors are given leeway to accept or deny an assignment as they see fit, they may set their own schedule, and frequently will provide their services to more than one company at the same time. As a result, independent contractors often maintain their own private office or work from home where they will fully incur the costs of doing business. Employees, by contrast, provide their services at the direction of their employer. They lack the ability to make their own schedule, primarily report to their employer’s place of business during regularly scheduled business hours, and rarely perform similar services for another employer simultaneously.
Independent contractors and employees differ in other key areas. Unlike an employee, an independent contractor will not have any tax or FICA withholding. Additionally, employees who are not managers or supervisors are entitled to overtime pay when working in excess of 40 hours in any given work week, but independent contractors are not entitled to overtime and are instead paid in accordance with the terms of their contract.
An independent contractor enjoys far less protection from unfair work practices than an employee. They receive no employment benefits – such as health and disability insurance – and are unable to participate in organized labor unions. If there services are terminated, they cannot seek unemployment benefits to bridge the financial gap between jobs, and if they become injured at work they cannot file a claim for Workers’ Compensation. Independent contractors also may not avail themselves of state and federal anti-discrimination and workplace safety laws.
Employers Are Liable When Employees Are Intentionally Misclassified
Classifying employees correctly, from the onset, remains the responsibility of an employer. When a worker believes that he or she has been misclassified it is important that they take steps to correct the error as soon possible. At McOmber & McOmber, we urge employees to not assume that the mistake is harmless or unintentional. Employers have legal and financial incentives to misclassify members of their workforce as independent contractors, and they will often push back when an employee asserts his or her rights under the law. When neither side can agree, a worker may request intervention by the Internal Revenue Service, which will conduct an independent audit and determine how a worker should be classified.