Classifying a worker as a contractor, instead of an employee is a common practice among many industries. It is usually done to reduce the amount of money paid to workers. This is because having a workforce of independent contractors reduces the employer’s tax liability. Instead, the tax liability is shifted to the worker. Many businesses have saved a lot of money by doing this. But this adversely affects the workers. Because they are not paid as per their actual status, they see increases in the financial burden.
Many workers have been wrongly classified as independent contractors. This has led them to pay extra tax. There are also certain legal protections for employees. Chaos arises when the decision is taken regarding who should be called an employee? Do you need to know if you are misclassified as an employee?
- Who is an employee?
The IRS has given a universal definition of employee. As per the definition given by IRS, a person will be classified as an employee if:
- He has signed a contract with any employer.
- He works under someone. He has to work per given deadlines, and guidelines are given by someone.
- He gets remuneration for the work done by him.
- He has to work at the workplace of the employer.
- He has specified working hours. Working for an extra hour will get him the extra salary.
- He uses the tools and types of equipment of the employer at a workplace.
- He meets the clients of the employer on his behalf.
The above-mentioned factors make a person an employee. These factors are enough to grant the status of an employee.
- What happens when someone misclassifies a person?
When a person is misclassified as an employee, he faces many problems. He is to pay extra tax. His financial burden increases. He loses many benefits which he deserved. Such benefits are a result of a typical employer-employee relationship.
The person loses the following benefits:
- He misses the minimum wage. He gets wage only for the work done by him.
- He does not receive the wage for working for extra hours. He misses overtime pay.
- He is not given the benefits sponsored by the employer. Such benefits are given to employees and not contractors.
- He fails to get unemployment insurance.
- He misses worker’s compensation. This amount is given to compensate for the needs of workers by paying them extra.
- The person is not given any tool or equipment to perform his work. He has to arrange his own tools in order to perform his own task.
What an employee can do if he has been misclassified?
If you are misclassified as an employee, you should consult with a local employment attorney to see what your options are. You may also need to fill out Form SS-8 with the IRS. This form is used by IRS to know whether someone is an employee or a contractor.