Countless employers are currently using the current economic climate as an excuse to take advantage of their employees. Just because they don’t want to pay their taxes doesn’t mean you should get screwed.
This post should help you distinguish between being classified as an employee vs. an independent contractor.
- Does your boss tell when what hours to work? How to do the work?
- Is the work you do dependent on the day to day operation of the business? Does the success of the business depend on this work being done? (i.e. Are you the point person for significant accounts?)
- Do you have to do the work yourself (as opposed to hiring someone else to do it for you)?
- Does your boss set your hours?
- Are you paid hourly? Or even salary? Maybe called a “fixed-fee” consultant? On set dates? (bi-weekly perhaps?) Fixed amounts?
- Do you have a work e-mail? A company phone? Company supplies?
If you answered YES to many of these questions, but your employer is treating you as an independent contractor then chances are you are a misclassified worker.
Maybe your circumstances require you to grin and bare it, but that’s not the case for many deceived young workers who are merely uneducated about this commonly used manipulation tactics. If you think you’re in this scenario you owe it to yourself to understand the law and what you can do when put in these unfortunate circumstances.
For instance, you may be entitled to lost wages (i.e. overtime that wasn’t paid, etc.), unemployment insurance, have social security withheld, and more.
Most of the time the employer knows exactly what they’re doing. But sometimes the employer is just incompetent and asks the accountant, “It’d be cheaper to have ’em be a independent consultant huh!?” They don’t realize that all the money they’re saving is money you’re now paying.
If you think you’ve been misclassified here are my recommendations:
1.) Learn as much as you can about the various rules. Here are some good resources to get you started:
Independent Contractor or Employee? How Should You Be Classified?
(IRS): Independent Contractor (Self-Employed) or Employee?
Twenty Factor Checklist to Determine Independent Contractor vs. Employee Status (PDF)
Be Careful Who You Classify As An Independent Contractor
2.) Be honest and upfront. Politely tell your boss you have a concern and ask them if they understand the rules and ramifications of you being classified as an independent contractor. Sometimes helping them understand the implications or just letting them know you’re wise to what’s going on is enough to get you back on track.
3.) Explain to your boss that if they’re going to treat you like an independent contractor that you’d like to make your own hours provided the work continues to get done. They might not go for this, but you might decide you like being classified as an independent contractor and start taking on additional clients in the evenings/weekends. Perhaps you can achieve escape velocity.
4.) Grin and bare it. Maybe the job still pays pretty well, you’re still learning, you enjoy the actual work and most of the people you work with. If you’re okay with your situation and are grateful for a job, have a family to feed, etc. you might choose to not take action. Or you might choose to keep working while simultaneously looking for something more rewarding.
5.) Find someone (like a lawyer) who really understands the process, and turn your employer in. This should be a last resort because it likely means you’ll lose your job, you could have to re-file your taxes, and it could reflect poorly on you to other organizations that don’t understand how you couldn’t resolve the issue another way.
Have you ever been misclassified? What approach would you take if were being treated like an employee, but paid like an independent contractor (i.e. no vacation, no matching FICA, no health insurance)? Do you think employers are trying to intentionally manipulate the system? (ps. The IRS is cracking down!)
[Your boss should also be able to spell your last name after a year.]