Misclassified as an Independent Contractor

An independent contractor is a self-employed individual who provides services to a business for a rate that is agreed upon in a contract. Misclassification as a 1099 employee (or Independent Contractor) requires you to pay taxes on the wages you are paid instead of having the taxes withheld as you would as a W-2 employee. An employer may intentionally misclassify an employee in order to avoid providing you with potential employment benefits such as an overtime rate of pay, allocated sick time, medical benefits, or other employee rights under the guise of being ‘self-employed’. Here are three signs that you are misclassified as an independent contractor.

1. Your employer sets your hourly rate and hours of operation.

If you are hired by an employer who decides your hourly rate along with the hours that you are to spend working, you should be classified as a W-2 employee.

Here’s why: If you were an independent contractor, the employer would be hiring you for your services, which you would already have an established rate that you charge other individuals or businesses for those services. Independent contractors also provide companies with invoices outlining their fees/costs that were accrued during the time that you were working for them.

Additionally, as an independent contractor, you are almost always able to arrange your own hours because you are self-employed and do not need to restrict your work hours to those of the business that you are doing work for.

Examples:

Melissa is hired at Sally’s Hardware Store at an hourly rate of pay of $15. She has been hired to work a full-time schedule from 9am-5pm every day. However, Melissa is asked to fill out a 1099 form because they want to classify her as independent contractor. Melissa is NOT an independent contractor due to the fact that she has no say in her rate of pay and because she is constricted to only working a set schedule, which is given to her by her employer.

Now, Mike is also hired at Sally’s Hardware store to paint the facility’s exterior. Mike advises Sally’s Hardware Store that he charges a flat rate of $5000 for the size of the building. Sally’s Hardware Store agrees to this price. Mike then advises Sally’s that he anticipates for the building to be complete within the next week, where he will be working from 6am-3pm daily. Mike IS classified as an independent contractor, as he set both his own schedule and his own rate of pay.

2. You complete job duties that are essential to that of your employer’s business.

Independent contractor status is normally assigned to those who complete duties outside of the scope of the business. The idea is that an individual or a team of individuals are contacted by a company to perform tasks that are outside of the scope of the business model. Generally, independent contractors have control over the work that is being completed.

For example, a law firm will hire an electrician named Bob, who is an independent contractor, in order to complete their electric wiring in their offices. The electrician has complete control over the electric wiring that needs to be done.

However, Kelsey is classified as an independent contractor and is completing the duties of a cashier at a retail store. Kelsey may be misclassified due to the fact that a cashier position is essential to the business model of a retail store. Kelsey does not have complete control of the duties she completing, as she is regulated by the company she works for with various rules.

3. You do not own your own business.

Independent contractors are self-employed so many independent contractors have an established small business or a business license to perform services or provide goods to other businesses. Because of this, independent contractors often perform services for multiple businesses at a time. If you are classified as an independent contractor, but you are only providing your services to one business for an extended period of time, you may be misclassified.

Examples:

Bob, the electrician, owns a small business named Bob’s Electric Services. Bob has provided services for various different offices in the area, which is how the law firm discovered him. At the time that Bob is providing electricity services for the law firm, Bob has several other contracts with other offices to fulfill their electricity needs. Bob IS an independent contractor.

On the other hand, Kelsey, is a cashier at a retail store. She does not provide cashier services for other retail stores, and she does not own her own business. Kelsey IS NOT an independent contractor, and if her employer labeled her as an independent contractor, she would be misclassified.

Ultimately, circumstances are different on a case by case basis, often making it difficult to identify if you have been wronged in the workplace. If you feel that you may be misclassified as an independent contractor, we recommend contacting an employee rights attorney or the California Labor Board for more information. You may be entitled up to $15,000 in associated penalties due to your misclassification status.