Employment misclassification is a growing problem across the country. It may seem like a simple question: are you an employee – or an independent contractor? Are you sure of that? Many employers either mistakenly or purposely misclassify their workers as independent contractors.
They do so for many reasons, all of which go to saving the company the time and expense of paying the taxes and other withholdings required by law and trying to get you, the employee, to take on that burden. Does your employer classify you as an independent contractor? If so, you may be in for a shock – you may not – according the IRS and the laws of most states – actually be an independent contractor at all, but are in fact an employee, with wages that are subject to withholding, and whose treatment under the law varies considerably than for an actual independent contractor. If you really want to be certain that your employer is following the law about your work status classification, the IRS uses three primary categories by which they make such a determination.
The three categories are:
- Behavioral Control – does your employer exercise the right to control how you perform a specific task? Yes? Then you may be an employee.
- Financial Control – If your employer directs or controls how the you conduct the business aspects of your activities, such as unreimbursed expenses, opportunity for profit or loss, method of payment, significant investment and availability of services to the market, then you may be an employee.
- Relationship of the parties: How do you and your employer perceive your relationship? Employee benefits, written contracts, discharge and termination aspects and the businesses regular business activities are some indicators considered for classification.
To determine more specifically how these three categories apply to a given employee/employer relationship, the IRS uses a 20-point checklist to evaluate whether someone is in fact an employee or an independent contractor. To know more clearly your own true employment status, look at the following list. If your employer would have to answer yes to any one of the questions (except #16) may mean that you are in fact an employee.
- Is the worker required to comply with instructions about when, where and how the work is done?
- Is the worker provided training that would enable him/her to perform a job in a particular method or manner?
- Are the services provided by the worker an integral part of the business’ operations?
- Must the services be rendered personally?
- Does the business hire, supervise, or pay assistants to help the worker on the job?
- Is there a continuing relationship between the worker and the person for whom the services are performed?
- Does the recipient of the services set the work schedule?
- Is the worker required to devote his/her full time to the person he/she performs services for?
- Is the work performed at the place of business of the company or at specific places set by the company?
- Does the recipient of the services direct the sequence in which the work must be done?
- Are regular oral or written reports required to be submitted by the worker?
- Is the method of payment hourly, weekly, monthly (as opposed to commission or by the job?)
- Are business and/or traveling expenses reimbursed?
- Does the company furnish tools and materials used by the worker?
- Has the worker failed to invest in equipment or facilities used to provide the services?
- Does the arrangement put the person in a position or realizing either a profit or loss on the work?
- Does the worker perform services exclusively for the company rather than working for a number of companies at the same time?
- Does the worker in fact make his/her services regularly available to the general public?
- Is the worker subject to dismissal for reasons other than non-performance of the contract specifications?
- Can the worker terminate his/her relationship without incurring a liability for failure to complete the job?
It should be rather easy to determine where your own job falls across all of the items on this list. If you conclude after comparing your actual job with these items that you should in fact be classified as an employee, your employer can be liable for payment of all taxes they have failed to withhold, and fines that can be quite stiff depending on how long they have engaged in this practice, and on how many employees they have misclassified. For more information about your rights under this law, contact our Employment Law Specialist at The Cartwright Law Firm today, at 415-433-0444, for a free consultation. Don’t be left holding the tax bag because your employer wanted to make you carry the burden.