If a company hires someone to perform a job, the person hired is usually an employee or an independent contractor. There are specific things that determine which classification the worker falls under.
Sometimes a company will misclassify a worker as an independent contractor, to avoid paying taxes and benefits, but still treat the individual as an employee. This can have financial consequences for both the employer and worker.
Employee vs independent contractor
According to the U.S. Department of Health and Human Services, Office of Child Support Enforcement, one of the biggest differences between an employee and IC controls. An employer may hire both to do the same type of job, but a contractor has control as to when and how to perform the job.
As a result, an IC is generally responsible to provide the necessary tools and pay associated expenses. A contractor also does not have any taxes taken out of the amount paid for the completed project. An IC is not eligible for employer-sponsored benefits, nor do wage and employment laws apply.
An employer can dictate details about an employee’s job and performance. In return, an employee gets benefits such as health insurance and vacation time and has protections related to employment and wages.
What to do about a misclassification
If you are currently an independent contractor and are thinking your employer is treating you as an employee, there are some easy ways to determine this. Your employer may have misclassified you if:
- Your employer dictates your schedule and work location
- You cannot work for other clients
- Your employer dictates what work you will do and how to perform your job
- You have to wear a uniform
- You cannot hire your staff
According to the Internal Revenue Service, some of the consequences for you as a misclassified IC is that you are not eligible for unemployment benefits, Medicare or Social Security because the employer did not take these taxes out of the paycheck. You also do not receive other employment-sponsored benefits.
If a judge determines that an employer misclassified you as an independent contractor, your employer must pay back owed employment taxes and may be responsible to pay you unpaid and overtime wages.