Misclassifying employees as a contractor is perhaps one of the most egregious problems laborers face. Misclassifying employers is blatant theft! It is a major contributing factor to the decline of the middle class in the U.S. What? That’s a bold statement you say? This article will explore the truth about misclassifying employees, but first, let us look at what employee misclassification is.
Here are the signs that you are misclassified:
1. You perform work for a person or company regularly at a time and place that the person or company designates.
2. You expect that person or company to pay you for the work you do.
3. The person or company does not withhold income tax, social security, or Medicare tax.
4. You do not have any specialized training, licenses, or certifications that make you uniquely qualified to perform the work for which the person or company seeks your services. For example, you performing administrative duties at a law firm and you are a law student.
5. You receive compensation based upon some degree of measure like days, hours or item.
6. At the end of the year, you receive a 1099.
7. The person or company for whom you do work may have you sign an Agreement that you are a contractor.
8. You do not set your own fees or work times.
9. You do not bring any special tools or equipment with you to perform the work.
10. You cannot perform the work for the company or person from your home or separate workplace.
Briefly, and with a few exceptions if you punch a clock and you receive pay by the hour, you are not a contractor and your employee is stealing from you. Here is why:
1. Social Security tax is equal to 12.4% of your taxable income. If the person or company properly classifies you as an employee, then you pay 6.2% tax and your employer pays a matching 6.2% for all of your wages up to a cap that the IRS sets each year. This year, 2019, that cap is 132,000.00. If you are misclassified, then you pay the whole 12.4% tax.
2. Medicare tax is equal to 2.9% of your taxable income. If the person or company properly classifies you as an employee then you pay 1.45% and your employer pays a matching 1.45% of your wages. If you are misclassified, then you pay the entire 2.9%.
3. Eligibility for unemployment compensation is another injury you may sustain if your employer misclassifies you as a contractor. Unemployment pay is not a handout by any stretch of the imagination. That nonsense is just some bologna that big employers force down your throat in an attempt to make you feel bad that they have to pay their taxes. Unemployment pay comes from insurance premiums that employers pay to the state and federal government to protect employees from their bad management or bad choices in hiring. If you lose your job because of a layoff, it is not your fault and you have a right to receive that compensation. It is a benefit you receive and pay for. Not filing for unemployment is like not filing a claim after a car accident because you take pity on the insurance carrier.
4. Upon retirement or upon disability, you will receive less benefit or possibly no benefits from social security and Medicare. Social security is not an entitlement. It is an insurance policy that you pay for your entire work life (or should). In fact, the actual name for “social security” is “Old Age, Survivors, and Disability Insurance” or OASDI. Have you ever typed the words social security into a word processor? If you do, you will notice that your auto correct likely will not correct it. However, if type Medicare with a small “m” and see what happens. That is because Medicare is a thing! Social security is just an adjective to describe the thing, which is OASDI.
5. Unnecessary costs to do tax returns, and subjection to additional scrutiny by the IRS also results when employers misclassify employees as contractors. Unless you receive a W2 at the end of the year, you can expect to pay significantly more to do your taxes. And, if you fail to pay taxes during the year and owe a balance, then you may owe tax penalties and interest too.
The chart below shows the minimum amount of money your employer is stealing from you by misclassifying you. All the other losses vary by person, so it is not possible to quantify your losses in an article for other than matching taxes.
Employee Losses due to Employer Misclassification
Employers who steal from employees by misclassification often spread other lies. These lies include statements like you will save money on taxes because you get deductions. That may be true in the moment, but remember social security (OASID) and Medicare benefits depend upon your earnings. Taking deductions reduces your earning over your life and therein reduce your retirement benefits. You may save a few dollars in the present, but it is going to cost you much more in your later life.
If your employer pays you as a contractor, there is a very high chance your employer is stealing from you. If you would like to discuss your particular situation, an attorney at Winborne LaFleur PC is happy to schedule a consultation.
Joseph “Jody” LaFleur
Attorney at Law
Winborne LaFleur PC