Employee misclassification happens when an employer maliciously categorizes a worker as "independent contractor" than as an "employee" to gain unfair business advantage.
An employer intentionally commits employee misclassification to deviate from tax and employment benefit obligations. The government loses much of tax revenues and the misclassified worker suffers unjust compensation.
Difference between an employee and an independent contractor
Employee- The control on how the business will flow remains with the employer. The employer directs the means and results of the business. The employee submits and reports directly to the employer.
Independent contractor- The employer avail of the services of other business establishments, and have their workers carry out specialized tasks. They are referred to as "independent contractors".
They determine what and how to accomplish the agreed project. The relationship is focused on fulfilling the terms of agreement.
Independent contractors supplement services that the company may need. They serve other companies and have their own resources to fulfill the tasks.
Here are some guide questions in determining the classification of an employee:
1. What is the liability of the employer in case the at-will employment is terminated?
2. What is the nature of the work? Is it an integral part of the business?
3. Does the worker's source of income depend solely from the payment of the company?
4. Does the worker has his or her own tools, equipment, or tools in completing the agreed tasks?
5. Does the worker open his or her services to other companies?
Employers should be careful in classifying their workers as either an employee or an independent contractor. A worker might have his or her own equipment in completing assigned task, but it does not make him or her an independent contractor. All other elements stated above should be present.
Employers should have the employees fill up a W-2 while independent contractors an IRS form 1099-MISC.
Employee misclassification usually occurs when workers are part-time or under probationary status.
Examples of workers who may be classified:
1. Sales representatives
2. Commissioned workers
3. Technical writers
4. Construction workers
5. Non-licensed engineers
Consequences of employee misclassification:
1. Workers will not be eligible for workers' compensation and unemployment insurance (UI) along with other company benefits such as overtime pay, leave, and health insurance. The workers may have to pay Social Security taxes on their own.
2. Employers evade from state-mandated taxes, causing an unfair competition with other companies
3. The government will have less UI revenues and GDP.
If you are a victim of employee misclassification, consult with a Labor Rights and Employment Law Attorney to help you file a lawsuit.