If you are one of the millions of unemployed Americans, you have probably noticed a lot of positions being advertised nowadays are for independent contractors. While some of these may be legitimate, many of these, especially part-time positions, are actually employee positions and are being used to allow employers to get away with passing their costs onto you, the employee.
There are a number of factors influencing this new rise of misclassified employees, none more so than the fact that when a small business owners claim an individual as an independent contractor instead of an employee, they avoid paying Social Security and Medicare taxes and they do not pay into unemployment for that worker. Employers also use it to get around the Fair Labor Standards Act since an individual has to be designated an employee to fall under it.
Besides the regulatory jujitsu misclassification allows employers to get away with, the process is also much simpler for employers at tax time with the burden of handling all that paperwork placed on you, the employee, rather than on them. Yu might wonder why people would want to put up with it, but remember, these tough economic times are causing a lot of Americans to bend over backwards in some cases to continue their cash flow. The hard truth is that it’s hard to walk away from or jeopardize a source of income when jobs are in such short supply.
There are a number of factors that are used to determine whether an employee is an employee or an independent contractors.
The most important factor in determining whether you are an independent contractor is dependent on the "subcontracting" organization’s right to control your behavior and the method or means you achieve the results of your work. In general, organizations have much more control over employees than they do independent contractors who, in the spirit of the wording, work more "independently."
If an organization can dictate only the result of the work, as opposed to the means or the manner by which the work is done, the person is more likely an independent contractor. Behavioral control refers to facts that show whether there is a right to direct or control how the work is done. A worker is an employee when the business has the right to direct and control the worker’s methodology and tasks in achieving the final product or service. The business does not have to actually direct or control the way the work is done – as long as the employer has the right to direct and control the work.
There is a test done by courts to determine whether or not an employee is truly and independent contractor. Though these are intended only as a guide-the IRS says the importance of each factor depends on your individual circumstances. You don’t have to fit into each of these factors to be considered misclassified.
To what extent are you required to follow the organization’s instructions? Do you need to check in every day? Is there someone at the organization you report to or who supervises your work?
Does the organization pay for any assistants you use or do you have the discretion to hire and fire as you see fit?
Do you have an investment in the equipment or facilities used to perform your work? Are you paying rent for where you are performing your work (not residential) or making payments on the equipment? If you are you’re more likely an independent contractor.
Are you reimbursed for expenses? Most real subcontractors are not reimbursed and factor expenses into their balance sheets.
Do you set your own hours or does the business set it for you and enforce those hours?
Do you spend all of your time at the worksite? Independent contractors can work at whatever location they wish for the most part.
Do you spend all of your time with one business or multiple ones? If you’re an independent contractor, you’d be contracting to multiple businesses.
Do realize a profit or a loss or just get a paycheck?
Do you get training from the business? Independent contractors generally do not get training because it’s assumed they’re already trained for the tasks they’re being asked to perform.
Does the business control your sequence of work? This would indicate control over your work, process and methods by the business.
Does the business make you issue reports? This would demonstrate a lack of independence – independence being something a subcontractor would have.
How are services rendered? Do you render them personally or hire someone else to do them? If you render the services personally then it’s moiré likely that you are an employee rather than an independent contractor. If you hire your own staff and delegate then you’re more likely to be an independent contractor.
Do you make your services available to the general public? People such as lawyers, contractors, subcontractors, and public stenographers who follow an independent trade, business, or profession in which they offer their services to the public, generally fall into this category.
Can you be fired? A real independent contractor can’t be fired without subjecting the business to the risk of a breach of contract lawsuit.
For more information go to an IRS publication that the agency uses to assist field staff with determining whether or not someone is an independent subcontractor at: http://www.irs.gov/...
By misclassifying workers as independent contractors or paying workers off the books, employers have effectively stripped workers of all the protections of the entire package of social insurance programs that created the American middle class.
The misclassification of workers is growing and becoming a problem that cannot be ignored. In New York alone, for example, there are approximaterly 705,000 misclassified worker. These workers lose coverage under workers’ compensation, unemployment insurance, temporary disability insurance, and Social Security. They also lose any paid time off, and lose access to any fringe benefits such as health insurance or pension. They also lose many employment rights, including the right to organize and form a union, and protections against discrimination and violations of minimum wage and overtime laws.
The effect of this problem is not just on the misclassified workers, but on other workers in the industries they work in as well. Employers that break the rules cut their costs and maximize their profit, allowing them a competitive advantage that either minimizes opportunities for above board employers or breaks them. It becomes a race to the bottom where wages are held artificially low. Government services are cut and taxes on working families are increased to make up for the stolen revenue.
Recently, there was legislation introduced in both the House and Senate that would impose new record-keeping requirements on employers that hire independent contractors, and impose stricter penalties for misclassification. Introduced by Rep. Lynn Woolsey (D-CA) and Sen. Sherrod Brown (D-OH), the Employee Misclassification Prevention Act (H.R. 5107, S. 3254) would amend the Fair Labor Standards Act (FLSA) to require employers to keep records on and notify workers of their employment or independent contractor classification and their right to challenge that classification. In addition, the measure would also:
• Impose civil penalties under the FLSA (up to $1,100 per employee for first offenders; $5,000 per employee for repeat or willful violations) on employers that misclassify employees as independent contractors;
• Amend the Social Security Act to establish administrative penalties for misclassifying employees, or paying unreported wages to employees without proper recordkeeping, for unemployment compensation purposes;
• Mandate state unemployment insurance agencies to conduct audits to identify employers who are misclassifying employees;
• Direct the Department of Labor (DOL) to perform targeted audits focusing on employers in industries such as the residential construction industry, for example, that frequently misclassify employees;
• Allow the DOL and the Internal Revenue Service to share information on cases where employers misclassify workers;
• Track and monitor states’ effectiveness in identifying employers who misclassify employees; and require the DOL to create a website summarizing employee rights under this Act.
Sign up for the Sheet Metal Workers' Action Teamat www.smwia.org/swat to keep up to date on information regarding the world of work or what is happening in the movement to prevent the mislassification of employees.