Reality: If you are misclassified as an independent contractor, you may be denied benefits and protections to which employees are legally entitled. Misclassification also has negative effects on businesses.
Typically, only workers who are “employees” have access to important benefits and protections under certain federal, state, and local laws. Among others, these benefits and protections may include:
The right to minimum wage, overtime pay
The right to unpaid, job-protected family and medical leave
Certain anti-discrimination and anti-retaliation protections
The availability of workers’ compensation if you are injured on the job
The availability of unemployment insurance (UI)
Employer payment of half of the Social Security and Medicare Taxes
Misclassification also hurts law-abiding business owners who don’t get to compete on a level playing field when some employers wrongly classify their workers as independent contractors and thereby lower their costs unlawfully. In addition, federal and state governments lose billions of dollars each year in tax revenue as a result of misclassification.
You may still qualify for UI even if you are classified as an independent contractor. Each state follows its statutes, regulations or policies to determine whether an employer-employee relationship exists. Even if you are considered to be an independent contractor by a business entity the state UI agency will make a determination as to whether that classification is correct under its laws or whether you are an employee and eligible for UI. Being classified as an independent contractor does not prohibit you from seeking UI.
To determine if you may be eligible for UI, please contact Arizona's Department of Economic Security
Receiving a 1099 does not make you an independent contractor. Receiving a 1099 tax form is simply the result of how your employer classifies you for federal tax purposes, but the form itself does not mean you are correctly classified as an independent contractor for federal tax purposes. And, receipt of a 1099 is irrelevant to determining whether you are an employee under the FLSA or FMLA.
Under the FLSA, you are an employee if your work indicates you are economically dependent on an employer. On the other hand, you are an independent contractor if, as a matter of economic reality, you are in business for yourself. It is important to remember that you can be an employee under the FLSA even if the IRS considers you an independent contractor.
Just because you are told that you are an independent contractor doesn’t mean that you don’t meet the legal definition of an employee. And even if you are a legitimate independent contractor under one law, you may still be an employee and entitled to the protections provided under other laws.
Signing an independent contractor agreement does not make you an independent contractor.
As a condition to being allowed to work, employers sometimes require workers to sign an agreement stating that the worker is an independent contractor. However, any label that you or the employer give to the relationship, even in an agreement signed by you, is irrelevant. Instead, what matters is whether the reality of the situation indicates that you are an employee or independent contractor.
Even if you are not on the payroll, you may still be an employee. Whether you are on the payroll does not determine if you are an employee or an independent contractor. Instead, what matters is whether the reality of the situation indicates that you are an employee or independent contractor.
Some laws require employers to keep employment records for their employees. However, your employer may not be fulfilling these obligations if you are misclassified as an independent contractor, if you are not on the business’ payroll, or if you are paid in cash “off-the-books.” In these cases, you may want to create your own records of your employment, including your hours or days of work, how much you are paid, how you are paid, and when you are paid. You will be responsible for paying federal income taxes on your compensation even if you are misclassified.
Even if your employer requires you to obtain an EIN or paperwork stating that you are performing services as an LLC or other business entity, this does not make you an independent contractor. There are no forms you can file with the IRS or a title your employer can give you that will automatically make you an independent contractor.
Having your own EIN or paperwork stating that you are performing services as an LLC, sole proprietorship, or other type of business does not by itself make you an independent contractor. This is particularly true if your employer requires you to file business paperwork and obtain a business name to get the job or to receive payment for your services. You are an employee if your work falls within a law’s definition of employment, regardless of how your relationship is characterized on paper.
Your employer cannot misclassify you as an independent contractor for any reason. Your employer cannot classify you as an independent contractor just because it wants you to be an independent contractor. You are an employee if your work falls within a law’s definition of employment.
You are not an independent contractor simply because you work off-site or from home. Both employees and independent contractors may telework or work off-site or work at a work site. You are an employee if your work falls within a law’s definition of employment. Your employer may still control or have the right to control how you do your work under the relevant law even if you work off-site and are not subject to constant supervision.
Being an independent contractor in the past does not mean you are not an employee that is misclassified as an independent contractor. Even if you have been a legitimate independent contractor for a long time, you could become an employee in the future if the nature of your work relationship changes. You are an employee if your work falls within a law’s definition of employment. The present nature of your work relationship (and not your previous status) determines whether you are an employee or not.
“Common industry practice” is not an excuse to misclassify ( exception: for federal employment tax purposes industry practice may be relevant). Regardless of the industry practice, if your work falls within a law’s definition of employment, you cannot be classified as an independent contractor and denied your rights as an employee under that law.