You may not care too much about whether your employer calls you an independent contractor or an employee until something goes wrong on the job. After all, employees have certain entitlements and benefits that contractors typically do not receive, but most people never need to use those benefits.
For example, employees have the right to receive unemployment benefits in many circumstances, while independent contractors typically do not. Additionally, employees have a straightforward process for accessing workers’ compensation benefits if they get sick or hurt on the job, which is notably not true about independent contractors.
If you worry that your employer has misclassified you as an independent contractor, it may be worth looking into. After all, misclassification doesn’t just affect the benefits you receive, but also the taxes you pay. You will pay more in employment taxes as a contractor to offset your employer’s lack of contribution on your behalf.
Are you actually an employee or a contractor?
Confusion about one’s actual classification is common enough. Many people assume that if their employer classifies them as a contractor, that is, in fact, what they are. However, many people who fulfill the kinds of obligations that employees have wind up classified as contractors.
For enforcement purposes, a contractor is someone who truly operates independently of the company. They may have multiple clients, likely provide their own equipment, have the right to decline work and perform accepted work on their own schedule.
Employees are subject to scheduling demands, typically receive supplies from their employer and are also subject to micromanagement in how they perform their work. The final distinction that can help you decide which classification really applies to you involves whether or not the work you do is a part of the basic money-generating function of the company.
Why employers misclassify workers
When a business treats someone like a contractor instead of an employee, they incur substantially fewer liabilities and expenses in their relationship with that worker. Classifying a worker as a contractor instead of an employee means avoiding the obligation to contribute toward employment, unemployment insurance and workers’ compensation insurance. It also means not paying overtime and meal and rest violations.
It can also make it easier for your employer to fire you without cause. Improperly classified workers should consider standing up for themselves and their rights, as a company that abuses them in this manner will likely do the same to others.