Are you slaving away alongside other employees, but only getting paid as an independent contractor? It may be time to call B.S. on your employer!
The workers’ compensation insurer can deny your claim if you are improperly classified as an independent contractor rather than as an employee.
Even if you were hired on an agreement that you would be an independent contractor, if you’re working as if you’re an employee, the IRS can reclassify your role. They care very much about receiving correct payments for withholding, Social Security, and Medicare so they have a vested interest in your job determination.
Obviously a company saves in other ways by making you a contractor. There’s the burden of providing insurance, and rules regarding whether and how you can be fired. Then there’s the responsibility for Workman’s Comp.
A variety of government offices test this relationship, from your state unemployment office on up to the Department of Labor. Employers who don’t understand the relationship properly can get into big trouble with audits, fines, and some serious back-taxes. For this reason, it’s an important determination that interests multiple government agencies.
So let’s get to the nitty-gritty. You’re more likely to be classified as a worker – not an independent contractor – if you:
- Were paid hourly instead of by the job
- Worked for only one company (especially if you weren’t allowed to work for anyone else)
- Weren’t allowed to set your own hours
- Received training and/or instructions from your employer (bottom line, you should demonstrate you weren’t allowed to exercise independent business judgment)
- Received tools and materials from your employer
- Received business and travel expenses from your employer
- Could walk off the job without incurring liability (because you weren’t paid by the job, you were paid by the hour)
- Provided services that were a vital part of the daily operations of the company
If you were a manager, there’s a whole new realm of questioning. The government wants to know if your managerial skills affected your opportunity for profit and loss. If you’re an independent contractor, you might hire and supervise workers to complete your contract. The test here is first whether you exercised your managerial skills on the job and second, whether those skills could have made a difference in the amount you made from the job. If being a better manager only benefits your company, this is an argument against your being an independent contractor.
As far as the IRS is concerned, “Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.”
The IRS looks at the entire relationship, to “consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.” The workers’ compensation judges look at the same criteria in determining whether an injured worker is an employee or an independent contractor. Again, the key is the right to direct and control the means and manner of the injured worker’s performance.
Ok, so the IRS has laid it out for you. First you need to think it through and decide if you meet any of these arguments for reclassifying your job status. Next, you need solid documentation, such as training materials, pictures of your company-issued tools, emails giving you specific direction on how to do a job, or emails that show your management skills were acknowledged…especially when your leadership only resulted in profit for the company, not you. Be sure to provide additional information showing who profited and how they profited from the incident where your management made a difference.
If you’ve got questions about whether your job is classified correctly, contact us today for more information.