Here is a typical employee misclassification scenario. An individual applies for job directly with a company. The company invites the individual to come on as a “contract” employee because the need is short term, intending to classify him/her as a 1099 independent contractor for tax purposes. The individual is not really set up as an independent contractor, but he/she needs the work, accepts the company’s rationale and does not question the 1099 arrangement.
Does this sound familiar? Then you may have been a victim of employee misclassification.
In today’s job world, many individuals choose to represent themselves as independent contractors because they like the freedom of doing project based work on their own time, typically from their home. This is fine, as long as the individual is really his/her own boss and is working with several companies (when business is good), doing spurts of work or tackling one specific order of business for a client. However, some employers are intentionally misclassifying their employees as independent contractors, either to save the money they should be paying for employment taxes and benefits, or just because they are uninformed (which is an excuse the IRS will not buy - see the IRS resource below).
Some of these companies claim that the “independent contractor relationship” has not been sufficiently clarified by the IRS (check out the IRS resource below to see for yourself and to judge whether you believe this is true). That is why it is important for workers to know their true classification and make sure that any employment arrangements they make are properly classified. This is good to know, because if you knowingly go along with the misclassification you’ll find yourself in hot water with the IRS, too.
If you are a true independent contractor, you’re set up to pay your own employment taxes and make your own quarterly tax deposits. You work on your own schedule, and may have employees or subcontractors of your own. You are not doing the work that the company specializes in, e.g. doing HVAC design for an HVAC design company. You are able to take on other work as you deem appropriate. You get paid when you finish the work or in agreed upon intervals while you are working on the project. You agreed to produce an outcome or finish a specific amount of work. You use your own tools to complete the work. You buy your own worker’s comp insurance and have no right to unemployment compensation. And as a true independent contractor you’re not hoping to be hired direct by the company because you already have your own business, and the company probably won’t offer to hire you direct because they specialize in a different line of work.
If you are truly an employee, you are involved with the basic work of the company. You have a supervisor directing your work or you are directed by the company on how work will be done. You get paid on an hourly or salary basis. You use the company’s tools to perform the work. You have a particular schedule laid out by the company, and you are free to leave the company any time you choose.
So what should you do if you believe that you are being misclassified as an independent contractor when you are really an employee of the company? Our suggestion is to ask to be payrolled through a professional staffing service, such as Aorist. We will be responsible for paying you, depositing the required taxes, and providing employment benefits for you.
Aorist employees are not independent contractors. They are employees who have the skills to do the work desired by the company, either for temporary assignments or for assessment periods while the company decides whether they want to hire them on full time. This is an appropriate employment solution for someone who is not the company’s employee but is on the company’s site, doing the work of the company under the company’s supervision, and being paid on an hourly basis. The individual must be classified as someone’s employee during this scenario, and Aorist can fulfill that responsibility.
If you believe you’ve been misclassified in prior jobs, you are able to file form SS-8 with the IRS to have the IRS clarify your true classification (see the IRS link below). Please review the resources below for more in-depth information on who is and who is not an independent contractor, and the ramifications of being misclassified.
More on the subject of independent contractor misclassification: