For an example, read about Blair and Davis, et al. People like delivery and taxi drivers, nurses, home health aides, and people working in the adult entertainment industry are most frequently misclassified as independent contractors when, in fact, they do not truly have control over the means and methods of performing their job. Service sector jobs are the most likely to be misclassified as independent contractors. Are certain jobs more likely to be misclassified as independent contractors? If an employer misclassifies its employees as independent contractors, the employer can face penalties, fines, and may owe its employees back taxes and be forced to pay unpaid overtime. Why do businesses misclassify employees as independent contractors?Įven though they face steep penalties and fines, some employers misclassify workers as independent contractors to try to save money. To combat worker misclassification, the Department of Labor started a worker misclassification initiative. Independent contractors pay less in taxes, and pay less money into state unemployment and workers' compensation funds. The economy also suffers when employers misclassify employees. The worker is denied access to legal benefits and protections like a minimum wage, overtime, FMLA (Family Medical Leave Act) protection, unemployment protection, and workers' compensation insurance if they are injured at work. When an employee is misclassified as an independent contractor, the individual worker suffers. Does misclassifying employees as independent contractors really cause any harm?Įmployee misclassification not only harms the individual worker, it also undermines the economy. Independent contractors receive none of these benefits or protections. they are protected if they attempt to unionize). Employees are eligible for unemployment and workers' compensation, which their employer pays into through taxes, and are entitled to collective bargaining protection (i.e. Additionally, employees are protected from retaliation and discrimination, and are entitled to medical insurance, pension plans, and family leave. Employees are entitled to wage and hour protection, which means they entitled to overtime and mandated breaks. As an independent contractor, all of these taxes are borne by you.īeyond the tax implications, employees are entitled to more legal protection than independent contractors. In the traditional employer-employee relationship, the employer pays half of the Social Security, Medicare, workers' compensation, and unemployment taxes. Why should I care if I am classified as an independent contractor or an employee? Generally, an independent contractor treats its employer more like a customer or client, will often have multiple clients, and is generally self-employed. In other words, an employer tells you what job needs to be done and when it is due, but when and how the job is accomplished is left up to the independent contractor. Usually the contract specifies the end result, but does not dictate the means and methods for getting the job done. If not, you are most likely classified as an independent contractor.Ī true independent contractor provides goods or services to another business or individual under a contract. You can also look on your pay stub to see whether Medicare, unemployment, workers' compensation, and federal, state and local taxes (if applicable) are taken out. Rather, this is short-hand for an independent contractor. By contrast, a "1099 employee" is not technically an employee. If you receive an IRS W-2 form at the end of the year, you are an employee. The easiest way to tell if you are an employee or an independent contractor is how you are paid. What is the difference between an employee and an independent contractor? How can I tell which one I am? This is a risky proposition as it exposes employers to significant tax and financial penalties, and deprives employees of many legal protections. Unfortunately, many would-be employers are taking advantage of this trend by misclassifying as independent contractors workers who should be employees. With mobile phones in almost everyone's pocket, Wi-Fi hot-spots on every corner, and anyone with a laptop and an internet connection able to start and run a business, the era of the independent contractor is upon us. This emerging business trend is being driven, in large part, by technology. By some estimates, 40% of American workers will be independent contractors by 2020. In today's ever-changing economic environment, more and more people are participating in the "gig-economy" - an environment in which temporary working engagements are increasingly common, and businesses contract with service providers for short-term engagements. Whether you should be a W-2 employee or 1099 independent contractor is becoming a very common question.
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