Independent Contractors and Misclassification

Independent Contractors work as needed for a company and are most likely subject to law/instruction from a staffing agency. As a non-employee, contractors must pay their own taxes and are subject to self-employment taxes.

Just because you’ve been told by your employer that you’re an independent contractor, been given a 1099, or signed paperwork agreeing to become one, does not mean you are legally an independent contractor under federal law. In fact, many employers have illegally and incorrectly classified their workers.

According to the IRS, “you are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done)… If an employer-employee relationship exists (regardless of what the relationship is called), you are not an independent contractor.”

Many employers have illegally and incorrectly classified their workers and had had to pay millions of dollars in settlements, and face a PR nightmare because of it. Take a look at the fallout that Uber and Lyft and Microsoft faced after misclassifying their employees.

Independent contractor classification is determined by the employee/employer relationship. There is no single rule or test but the Supreme Court has indicated the following factors as being the most significant:

  1. The extent to which the services rendered are an integral part of the principal’s business.
  2. The permanency of the relationship.
  3. The amount of the alleged contractor’s investment in facilities and equipment.
  4. The nature and degree of control by the principal.
  5. The alleged contractor’s opportunities for profit and loss.
  6. The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
  7. The degree of independent business organization and operation.

If a substantial employment relationship is found, the employee may not be considered an independent contractor and should be covered under the minimum wage and overtime regulations of the FLSA.

Many employees are also misclassified as being an exempt salaried employee, read more about other FLSA violations here. Contact us today with the form below.