Misclassifying Employees as Independent Contractors | Mann & Elias

Were You Misclassified as an Independent Contractor? Speak to Our Wage and Hour Attorneys Los Angeles

Coming to the end of the year 2011, California passed a law, which imposes higher penalties to those employers who misclassify independent contractors and employees. Both the employer and employee need to understand the factors that differentiate an employee from a contractor. It is the best way to protect workers’ rights and prevent employers from violating the law.

The law gives the Labor and Workforce Development Agency (LWDA) the mandate to fine those employers who have willfully misclassified employees as independent workers. Here are some requirements as per the law.

  • The fine is between $5,000 and $15,000 for every misclassification done by the employer.
  • In case an employer is found to have been practicing misclassification, they face a fine of about $10,000 to $20,000.
  • On top of these fines, an employer is expected to pay back taxes and benefits they had evaded by misclassifying employees.
  • Employers in California are also prohibited from deducting expenses such as rental space, licenses, or food as long a worker is categorized as an employee.
  • When an employer is found guilty of misclassifying workers, they are required to publish such offenses on their website as per the stipulations of the law. In case a company does not have a website, then the employer must post this information in a place easily accessible by both employees and the public.

The court and LWDA rely on economic realities to evaluate if a worker should be classified as an employee or a contractor. The main question in this evaluation is, does the employer solely control the work done by the worker? Other factors to consider include;

  • Does the employer provide the resources required for the job to the worker?
  • Does the work require special skills?
  • Is the job permanent?
  • Does the work form a fundamental part of the employer's business?
  • Does the worker do another job apart from that of the employer?
  • How the worker’s payment is calculated — is it time or piece rate?

In this case, a worker is determined as an employee if the person who receives the services they offer has primary control over how the job is done and has specified expected results. On the other hand, independent contractors are workers who control how they do their work and earn a specified rate for a particular task. An excellent example of an independent contractor are Uber and Lyft drivers.

What are the repercussions of being misclassified as independent contractors?
  • When you are misclassified as a contractor instead of an employee, you face some costly legal and tax consequences.
  • You are required to contribute towards your social security and Medicare taxes from your own pockets — as, for employees, employers pay half of this amount
  • You are not qualified for unemployment insurance coverage —employees are eligible for this coverage
  • You cannot receive any workers’ compensation benefit; it is only entitled to employees
  • You will not receive workplace benefits such as minimum wage, sick pay, or overtime pay
  • You are not eligible for healthcare insurance provided by the employer under Obamacare

There are a lot of benefits you lose for working as an independent contractor as compared to working as an employee. The main reason why employers prefer classifying workers as contractors instead of employees is the fact that they have a chance to save more. However, if you believe that you are misclassified as a contractor while working as an employee, you need to take action.

Actions to Take in Case of Misclassification as an Independent Contractor


Speak to Your Employer

Some misclassification cases can be solved amicably, and the first step you should take is talking to your employer and see if they can review your classification. Explain to them why you feel misclassified, and if they maintain their ground, at least let them make you understand why they classified you as such. If this does not work, and you still consider being misclassified, involve the IRS. Taking legal action would also be a good idea. You can hire an employment attorney Los Angeles, overtime dispute lawyers Los Angeles, wage and hour attorneys Los Angeles, or an unpaid overtime lawyer Los Angeles, depending on your case.

Contact IRS


You can involve the IRS so that they can help you determine your employment status for tax purposes. You do this by filing IRS form SS-8, which is free. Through this form, you will answer different questions on the nature of your job, and how your employer is involved in it. IRS will then contact your employer to get their side of the story. After analyzing this information from both sides, they will make a decision that will be binding on the IRS for the purpose of federal employment tax as well as income tax withholding. While this decision is not binding to your employer, they need to cooperate with the IRS in the determination.

File your return using IRS form 8919. You use this form when you have been paying your social security and Medicare taxes as an independent, yet you should have been paying half as an employee. This means you are entitled to the uncollected Social Security and Medicare tax that you overpaid or that, which is due as compensation once your classification changes from contractor to employee. However, for you to file using Form 8919, you need to prove your eligibility to do so.

File Administrative Claims


If you feel like you are misclassified as a contractor, you can ask a qualified employment attorney Los Angeles to help you with the best claim to go for. In this case, if the main issue is about the unpaid overtime, minimum wage, or any other reimbursements, you can go for a wage claim. Seek for the help of an overtime dispute lawyers Los Angeles, wage and hour attorneys Los Angeles, or an unpaid overtime lawyer Los Angeles. If your concern is about other benefits such as workers’ insurance compensation, you will need to file a different type of claim.

File an Unemployment Insurance Claim


In case your employer fires you while classified as an independent contractor, it means you are not entitled to worker’s compensation insurance coverage. You can hire an employment attorney Los Angeles to help you file an employment insurance claim with LWDA. The agency will investigate your case to determine whether you are misclassified as a contractor and whether you are entitled to the insurance coverage. In case the employer is found guilty, they will be fined and forced to pay back all the insurance premiums they never paid for you.

File a Workers’ Comp Claim


In case you get injured at work, and your employer is not willing to provide workers compensation coverage, you can file a workers’ comp claim. The Division of Workers' Compensation in California will help you receive the benefits, once they determine that you are eligible as an employee of the company.

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