Employee misclassification is a surprisingly widespread problem across many industries, and yet it is poorly understood by most workers. And yet, whether an employee is properly classified can have a massive impact on their taxes, income, and benefits. So, why is it that some employees are misclassified, and what can you do to deal with it?
The term “employee misclassification” refers to the fact that there are two primary kinds of workers: employees and independent contractors. An employee is a worker who is under the full control of their employer, but who is entitled to a variety of benefits from their employer, while an independent contractor is a worker who is neither under the control of their employer nor entitled to those benefits. When an employee is designated as an independent contractor, or vice versa, they have been misclassified.
Employees can be misclassified for a variety of reasons, both innocent and malicious. One common issue is that, while the distinction between an employee and an independent contractor seem like it should be clear-cut, there is, legally speaking, no hard line between the two categories. Instead, there is a set of criteria that are considered whenever a worker’s employment status is disputed, any of which can weigh on one side or another. These factors, as stated by the US Department of Labor, are as follows:
- Are the worker’s services an integral part of the employer’s business?
- Is the working relationship intended to be long-term rather than temporary?
- Does the employer provide facilities or equipment for the worker?
- Does the employer exercise control over the worker, and if so, to what extent?
- Is the worker restricted from making income outside their relationship with their employer?
- Is the worker limited from making personal profit or loss from the work?
- Does the worker operate primarily within the employer’s organization, rather than having an independent business operation?
For every question above that you answer “yes,” the more likely it is that a person is to be considered an employee rather than an independent contractor. However, it is not a simple matter of comparing the number of criteria that lean towards an employee versus an independent contractor; it is also about comparing the degree of each criteria. For example, even if an employee’s actions are integral to an employer’s business, if the job is temporary, the employee is expected to provide their own equipment and facilities, and the employer gives them a great deal of freedom to do their job as they please, they are likely to be considered an independent contractor. Meanwhile, a non-integral worker with stringent work requirements who is tightly controlled by their employer is much more likely to be determined to be an employee than an independent contractor.
This is important because employees are entitled to certain benefits, and are protected by certain laws, that do not apply to independent contractors. For example, employees are entitled to sick leave, worker’s compensation, and are protected by anti-discrimination laws like the Civil Rights Act and the Americans with Disabilities Act. Independent contractors, on the other hand, are not afforded those same protections, and if they get sick or injured on the job or suffer discrimination, the only protections they have are those written into their contracts.
Another important issue is the matter of Social Security taxes. For employees, half the Social Security tax is paid by their employer, while half is withdrawn by the employer from their paycheck. Independent contractors, on the other hand, are expected to pay the entirety of the Social Security taxes themselves. Unfortunately, many employees only find out they have been misclassified as an independent contractor when they find themselves on the hook for thousands of dollars in unpaid taxes.
If you are not certain whether you are considered an employee or an independent contractor, a good way to check is to see if your employer has your W-2 forms on hand. You are legally entitled to view them, and if your employer has been diligent reporting to the government, they should be readily available. If your employer is unable or unwilling to show you your W-2’s, that is a strong sign that your employer may have you classified as an independent contractor, in which case you should contact an employment law attorney immediately.
If you have gotten into a legal dispute with your employer, it is important that you seek the guidance of an experienced New York employment lawyer who can protect your legal rights and advocate on your behalf. Steven Mitchell Sack, the Employee’s Lawyer, is a New York employment lawyer with more than 39 years’ experience handling the many aspects of employment law. To schedule an appointment with New York City employment lawyer Steven Mitchell Sack, call (917) 371-8000.
