Legal Help If You Are a Victim of 1099 Misclassification
Independent contract work has become increasingly popular. If you are being considered an independent contractor for the work you perform, or someone you know is falling under this category, it is crucial you know your rights. You may be falling under the 1099 Misclassification category and facing serious penalties. Contact your employment attorney to ensure your rights are protected.
The difference between your classification falling under employee versus an independent contractor involves control and compensation. Independent contractors incur unreimbursed expenses throughout their work day and are responsible for providing the funds to cover equipment necessary to perform their job. These contractors also make their services available to numerous clients for a flat fee. Employees do not work under any of these conditions.
Many times, employers will misclassify their employees as independent contractors, so they are able to avoid paying them properly. If you have been classified as an independent contractor, your employer avoids:
- Paying you overtime wages
- Paying taxes on your behalf
- Providing you with benefits
- Paying into worker's compensation
- Paying into unemployment
If you feel there is a misclassification error on your job status, contact your attorney for legal counsel and protect your rights.
How do I know if I am a 1099 Misclassified Employee?
There is a certain amount of confusion regarding the classifying of one as an employee or an independent contractor. Some believe it is up to the company that is receiving the work from an individual how they want to classify them; however, this is incorrect. The IRS has set down precise guidelines to follow when classifying one as an employee or as an independent contractor. These are some of the signs you've been misclassified as a 1099 independent contractor:
- You are driving a company car or other vehicle
- Your supervisor or someone in charge tells you when you are able to take a vacation
- The computer you use is owned by the company
- You are not submitting a monthly or weekly invoice for services performed
- There is someone in charge of your work, or you are reporting to a supervisor
- Someone is monitoring your performance and providing you with a schedule to follow for getting work completed
- You are wearing a uniform representing the company and are required to report to work in the uniform
- You are using company business cards and the company's email address
- There are other individuals where you work performing the same duties, but they are classified as W2 employees
- Someone advise you when it is time for breaks
These are some of the more common identifying facts that signify an independent contractor is being misclassified by the company where they are providing their services. Contact an employment attorney if you suspect you are being misclassified as there are serious legal complications as well as financial obligations you could be facing.
Obligations of an Independent Contractor
Being an independent contractor makes you responsible for:
- Paying into unemployment or makes you ineligible for unemployment benefits if no one is paying into the fund on your behalf
- Paying into worker's compensation fund or makes you ineligible for worker's compensation if no one is paying into the fund on your behalf
- Paying all of your Social Security and Medicare taxes. As an employee, your employer would be responsible for half; however, if you are an independent contractor, you are responsible for the full amount
- All your own health care coverages
- Ineligible for any workplace rights given to employees such as sick pay, rest breaks, overtime pay, or minimum wage protection
If you feel your work entitles you to be classified as an employee and receive the benefits given as an employee, contact an employment attorney who understands these guidelines and will fight to ensure, you receive the protection granted under the United States Department of Labor's employee rights.
As a 1099 independent contractor, it is your responsibility to pay all your Medicare and Social Security taxes. Use the IRS Form 8919 to report and determine your share of uncollected taxes due as if you were an employee rather than an independent contractor. You can only use Form 8919 if one of the following factors applies to your situation:
- You were sent a letter from the IRS telling you that your job status qualifies as an employee
- The services you are performing were once done with you considered an employee, but your employer changed your status to an independent contractor
- There are other individuals at your place of work who perform the same duties as you, but they are considered employees, while you are classified as an independent contractor
- Other employees where you work who perform your same duties were once classified as independent contractors, but filed the Form SS-8 and have been determined to be employees
- You have filed the Form SS-8 and are awaiting a reply
Filing for Unemployment or Worker's Comp as a 1099 Independent Contractor
Being misclassified as a 1099 Independent Contractor means you most likely have no benefits available if you are injured on the job, laid off, or fired. If you feel you've been classified incorrectly, you can file an employment insurance claim with your state unemployment agency and explain your situation. Having legal counsel available in these situations will be to your advantage.
Filing for unemployment with your state agency, you will have to explain that you have been misclassified as a contractor rather than as an employee and they will look into the matter for you. Having an attorney working with you will speed this process and possibly get your resolution through faster so are not losing revenue for too long of a time. If your attorney and the state determine you should have been classified as an employee, your employer will be responsible for paying your unemployment as well as any back payments due to the state fund.
If you've been injured performing your services and the employer will not provide you with worker's compensation, you can file with your state worker's compensation insurance agency. Your attorney can also help you through this process as it will have to be proven you are working as an employee and are entitled to compensation.
Fair Labor Standards Act and How it Applies to You
The Fair Labor Standards Act is a federal law. This law was put into place in 1938 as a means of protecting your rights as a worker in the United States. It grants an individual the right to receive a minimum wage and overtime pay when you work more than forty hours in a week. This act also prohibited the employment of most minors.
Fact Sheet 13 under the Fair Labor Standards Act (FLSA) states information regarding employment relationships and defines provision under the Act. On the Sheet are characteristics set down by the United States Supreme Court which will help you determine if the courts will find you an employee or an independent contractor under the law.
These are some of those factors which are considered significant in distinguishing the difference:
- The degree of control and it's nature by the one supervising or controlling your work
- The extent or degree in which your work is involved with the principal business
- How much you have invested in the facility and equipment
- How permanent your position is considered
- Your opportunity for profits and losses
- How much is dependent on your judgment, initiative, or foresight in the marketplace for which effects the success of the business
Along with these factors, the Supreme Court has also listed certain factors that are considered immaterial when determining whether you are an independent contractor or an employee. These factors include where you perform your work, the fact you do not have an employment agreement, and whether or not you are licensed under your state or local government. This court has also determined it does not matter how or when you are paid as a deciding factor in whether you are an employee or independent contractor.
Certain industries create more confusion related to employee status. The construction industry is one at the top as contractors hire who they refer to as independent contractors when in fact these individuals should be considered employees as they do not meet the independence tests as listed above. The franchise industry is another area that can pose problems with employee status issues. Many times, the franchisor has a lot of control over the franchisee putting them in the employee category.
When a person volunteers their services for another also creates an employee relationship. This situation would involve an existing employee donating their time or services which are exactly the same services as what they perform as an employee. Students and trainees often fall within the standards of an employee relationship as well as those who perform work duties in their home.
If you or someone you know falls within the parameter of these standards and are not being considered an employee, you need to speak with an employment attorney. When you are considered an independent contractor, your employer is withholding critical benefits due you under the law.
1099 Misclassification Sounds Like a Scam
When an employer intentionally misclassifies your position as an independent contractor, they are essentially 'scamming' you out of deserved benefits the law states you are entitled. Sometimes referred to as 'payroll fraud,' 1099 misclassification is an alarming reality across many industries. Workers in janitorial services, delivery services, home care, and trucking services are filing major lawsuits against companies who intentionally misclassify their employees as independent contractors.
Many companies will misclassify employees to discourage them from filing claims. When told you are an independent contractor rather than an employee, it gives you the false impression you have no rights. If you are worried you aren't receiving proper employee protection, contact an employment attorney. We will provide you the legal counsel you need to ensure you are receiving adequate compensation for the work or services you are producing.
California Misclassification Rule
The federal law states being qualified as an independent contractor hinge on how much 'control' your employer has over your work duties. Control constitutes when, how, and where they tell you to perform your duties. The more power they have over your work habits, the more likely they should be classifying you as an employee.
California Independent Contractor Law is even more protective than the federal guidelines. There are three separate ways for an independent contractor to prove they should be classified as an employee under California Law which will entitle them to labor code penalties, overtime pay, and other benefits.
In 2018, California adopted the 'ABC' test to use in determining whether one should be classified as an independent contractor or an employee. This is your most reliable test in proving your employment status when you work in California.
- You are free from the company's control
The company you are providing work or services for must prove you are free from its control while performing your duties. They cannot set the number of hours you work, require that you report to a specific location on any day, require you to wear their company uniform, or require you to report to a specified 'manager'.
- Your duties fall outside of the company's normal course of business
In order to be considered an independent contractor under California law, your duties must fall outside of the company's core business. For example, if you are providing services for a delivery company and your primary function is to deliver goods, the company must classify you as an employee.
- You must operate a separate business from the company
Your employer must prove you are customarily engaged in a separate trade, occupation, or business separate from the company. This part of the test would have to prove you are someone in-business for yourself.
Under the California Supreme Court ruling which adopted the 'ABC' test, your employer cannot fail to prove any of the three "ABC's or they are required to classify you as their employee. If it is proven you've been misclassified, under California's Private Attorney General Act, you are entitled to recover a share of the total labor code penalties. Under 1099 misclassification code, the California labor commission will be granted anywhere between $5,000 and $25,000 for each misclassification that has been found to be intentional.
Possible Penalties for Employers
Misclassifying employees opens up a lot of trouble as the government discovers they are missing out on payroll and tax revenue which can cause legal issues for you. As an employer if you have been charged with misclassifying your employees, contact your attorney to learn about your legal options.
If the government finds you unintentionally misclassified your employees, they will still penalize you. You will be facing:
- Fifty dollar fees for each W2 you did not file
- Having to pay 40% of each employee's FICA contributions
- Having to pay 100% of each employee's matching FICA contributions
- Having to pay one and a half percent of each employee's wages, plus an added interest calculation
If the government determines you intentionally misclassified employees for monetary reasons, you are facing:
- Prison time of up to one year
- Having to pay twenty percent of each employee’s wages
- Having to pay up to $1,000 in criminal penalties for each employee misclassified
- Having to pay one-hundred percent of each employee's FICA contributions
If it is determined the misclassification was an intentional act, the person responsible for the filing can also be held personally accountable. You will need legal representation on your side during this process to ensure your legal rights are protected. These proceedings can tarnish the image of your company, and you will want the best advice possible.
Proceedings such as these could cripple your company's budget with punitive damages, compensation beyond the fines and back payments as well as loss of your employee's time. Many times, these misclassification errors are a simple misunderstanding or misinterpretation of tax laws, and you will need our experienced understanding of such laws to get you through this difficult challenge.
How Misclassification Turns into Company Audit
The government states employers cannot treat independent contractors the same as W2 employees. You cannot provide on-the-job training, require they work certain hours, or ask them to perform any work similar to that of an employee. If you are expecting any of these three functions from individuals performing services for you, it's a red flag that misclassification is occurring.
An organizational audit can occur if one of your contractors’ files for unemployment benefits, reports the conditions under the whistleblower act, or files a Form SS-8 to determine their classification. There will be little warning, and it will cause your company a considerable amount of time to prove the misclassification was unintentional. Contact an employment attorney who understands the laws and regulations surrounding employment. We can provide the legal counsel necessary to help you through a complicated and what could amount to an expensive challenge.
Legal counsel will help you to prove your 1099 misclassification was unintentional; however, it will still put your company at risk for serious penalties. You could be facing monetary fines such as severance or healthcare coverage for the employees found to be misclassified, back taxes, and possible damage to your company's reputation. There could also be consequences with long-lasting effects such as civil or criminal sanctions.
What to Know if Your Company is Audited for 1099 Misclassification
The audit will begin with a letter from the IRS. Upon receipt of this letter, you should contact an employment attorney to seek counsel on what to prepare and what to expect. Retaining legal representation from someone who understands labor and employment tax will provide crucial help through this process. We can help you gather background information, determine if misclassification actually occurred, and limit the scope of the audit.
The auditor is going to ask for your financial records such as income tax returns, financial statements, bank statements, and your 1099s. They might also request a meeting to discuss particular case information. Your legal counsel will assist when the audit wraps up to negotiate fines, penalties, and settlement amounts. We will also provide information on how you can avoid these 1099 misclassifications from occurring in the future.
How to Avoid a 1099 Misclassification
Your best defense in avoiding a 1099 misclassification audit is to minimize your risk. If you are concerned about independent contractor status working with your company, you need to look at your policies, practices, and records regarding what you are expecting from these individuals.
You should have supporting documents in your files as proof of self-employment for any independent contractors working for your company. Create a contract to protect your company which states these individuals are engaging their services as independent contractors and they are free from control. If applicable, you should also list or state what their business license is and any insurance information they carry.
Contacting 1099 Misclassification Legal Counsel Near Me
If you or someone you know suspects they are a victim of 1099 Misclassification call Stop Unpaid Wages 424-781-8411 today. We are experienced in employment and tax laws and ready to ensure you receive the employee benefits you are due. Employers who have unintentionally found themselves in trouble with the IRS regarding 10990 misclassifications should speak to our legal team. Arbitration awards are higher for parties represented by legal counsel. Call or fill out our contact form to schedule a free consultation with our premier team and discover the services we have available for all legal employment issues.