The matter of classification of employees as independent workers and not employees is a move by employers to seek tax benefits at the expense of employees. By classifying employees as independent contractors, employees receive 1099 tax forms as opposed to W-2’s, tax forms used by employees. Further, these individuals do not access the benefits that accrue with being an employee of the company and not an independent contractor.
Such misclassification is a disservice and one that can be rectified through legal action against your employer. Stop Unpaid Wages teams up with aggrieved employees in California to seek proper compensation. This article will help you understand the labor laws that protect you against such actions by employers.
Understanding Independent Contractors
Individuals who offer services for monetary compensation under a contract other than that of an employee-employer agreement are independent contractors. The working terms of an independent contractor differ from that of an employee agreement. Such provisions include specified working hours, an hourly rate, overtime compensation, and the nature of the work. These terms are agreed upon either in writing or orally.
An independent contractor may receive freedom while working under the above terms. However, the downside of such an arrangement is your agreement voids certain protections employees enjoy. These safeguards include wage and hours law as well as overtime compensation regulations. In most cases, entities offer working terms to individuals that qualify to be under an employee-employer agreement but end up compensating the hired staff under independent contractor-employer terms.
Differentiating an Employee from an Independent Contractor
California’s labor laws define an independent contractor as an individual who performs a service for another and is compensated for the specific task. Further, the individual exercises control over how the job is performed. California uses an ABC test to classify individuals as employees or as independent contractors. The system presumes all workers are employees. However, an employee is deemed as an independent contractor if it is determined that:
- The worker exercises control of the project or the assigned task. That is, the worker is in charge of the job's direction and is responsible for its outcome
- The worker is independently engaged in other businesses of a similar nature to the work handled for the company in focus, and
- The staff member performs work other than that which is usual for the hiring entity
The ABC test then addresses a vital issue for most employees, "Am I an independent worker if I signed an agreement stating that I am?"
Courts consider the nature of your hiring relationship to verify whether you are an employee or an independent worker and not the signed document stating you are an independent worker. Therefore, if your working relationship meets the criteria above, you will be considered an employee.
Factors that help differentiate employees from independent contractors are not limited to those detailed above. Other aspects also help determine the nature of the working relationship. Independent contractors:
- Have a right to control who does the work, and the kind of the task assigned to them
- Provide the equipment needed to complete the task
- Provide training for all the staff members working on the project
- Have jobs that are time-specific. That is, their projects run for a specified period as opposed to a continuous engagement as is the case in employee-employer contracts
California Wage Laws
The wage laws in California safeguard employee compensation plans. Independent contractors are not covered under these laws. This presents a challenge for most employees because employers misclassify their employees as independent contractors, thus denying them a chance at fair compensation.
Employees enjoy the following rights under the California wage law. The law addresses minimum wages and overtime compensation.
- Minimum Wages
Any employee is to be paid a wage pursuant to California’s wage and hour laws. The minimum payments are set at:
- $11 per hour to be offered by employers with twenty-five employees or fewer
- $12 an hour for employees if they are more than twenty-six employees in the firm
The wages are set as the state wage rates. However, most California counties and towns have adopted higher minimum wage rates.
Overtime is only applicable to non-exempt employees. These are employees other than company executives, professional and administrative employees. Exempt employees:
- Spend at least half of their time handling intellectual, managerial, strategy formulation, or creative work
- Exercise discretion and independent judgment in performing their duties
- Earn a monthly payment that is at least twice that of the state’s minimum wage pay for full-time employment. Employment engagements are considered full-time if the job runs for 40 hours a week.
Additionally, the following categories of employees are part of the non-exempt employees.
- Employees Earning Commissions - Employees who earn more than half their commission earnings and whose totals are more than one and a half times the minimum wage.
- White-Collar Professionals - This category focuses on professionals in the medical field, which includes surgeons, doctors, and nurses. Such professionals are those working in the industry under a medical license but are not subject to the provisions of a collective bargaining agreement. Any medical practitioner who earns a pay of at least $82.72 per hour qualifies as a non-exempt employee.
- Private School Tutors - The private K-12 teacher must primarily impart knowledge to their students, exercise their discretion and independent judgment, and have attained a degree or a higher degree from a certified university. Further, you should have valid teaching qualifications.
Tutors from elementary or secondary schools are non-exempt employees. They must earn the lowest salary offered to licensed teachers in California or make 70 percent of the least salary provided, whichever is greater.
- Computer Software Professionals - Employees working in this field under software and hardware designs, computer systems, as well as system analysis, fall under the exempt employee category. Such employees should be earning an hourly rate of at least $45.41. The computer software industry has various professionals. Content providers, trainees, interns, employees in the manufacturing, repair, and maintenance department of computer hardware, as well as those in computer-aided design, programming, and analysis, are not exempt-IT professionals.
Many employees are misclassified as 1099 independent employees or as exempt employees. The move by such employers is aimed at avoiding paying overtime dues to the employees. It should be noted that signing an agreement that states you are an exempt employee does not deny you overtime compensation. Further, receiving a salary instead of hourly pay should not deny your overtime pay.
Overtime in California is paid for services rendered in excess of eight hours in a working day or forty hours in a working week. Further, the compensation is paid for services offered within the first eight hours worked on the seventh day of the week. Should you work in excess of twelve hours in a typical working day, you are a candidate for overtime compensation. Further, you should also receive overtime dues if you work for more than eight hours on the seventh day of the week.
In some cases, the employer gets into an agreement with the employees with regard to overtime pay. Such an agreement must be ratified by at least two-thirds of the affected workers. The agreement states, among other issues, that the employees can work without overtime pay if they work no more than ten hours in a working day and within forty hours in a week.
Most employers prefer classifying employees as 1099 employees or independent contractors to reduce payroll costs and avoid paying employment taxes. The sums may seem small at first glance, but having the total of the employees affected over one year, the aggregate amounts to a substantial value.
Employees are denied their overtime dues by receiving straight-time for the overtime packages as opposed to hourly rates, and by being compensated under the Day Rate pay plan. This pan does not cater for weekly overtime hours.
Every employer determines the rate of overtime compensation to their staff members. However, their payments should be within the two systems established under the labor laws. The first system pays overtime of no less than one and a half times your hourly compensation rate. This system caters to employees working within eight hours a day, forty hours a week, and within six working days of the week.
The second compensation plan considers the hours put in by the employee. If you work over twelve hours a day or more than eight hours on the seventh day of the week, your employer should pay no less than double your hourly rate.
Some employers require their employees to work off-the-clock. The move is aimed at having the employees work after they clock out without receiving overtime compensation for their work. Such work includes post-shift duties, pre-shift work, administrative tasks, and working within lunch or rest breaks. Any off-the-clock work is compensated within the hourly rates. If you work above the maximum working hours, you are entitled to receive overtime pay.
Seeking Redress for Misclassification
The legal system has in place mechanisms to help staff members who are victims of a misclassification. You can use the legal channels to enforce your rights as an employee. With the help of an attorney familiar with labor laws, you can seek compensation for the abuse of your labor rights. It is worth noting that you should file a labor law violation suit against your employer within three years of the occurrence of the incident.
The following are the legal channels you can use to seek full compensation for the violations.
- Wage or Hour Lawsuits
It is clear from the above information that you are entitled to fair compensation for your work. As such, misclassification of your employment terms to deprive you of fair compensation is a violation of the labor laws. You can sue your employer under the wage or hour lawsuit.
The lawsuit seeks action against an employer for their violations. The suit further compels the employer to pay:
- Unpaid overtime or wage balances that you did not receive
- Backdated wages and overtime sums
- Accrued interest on the amounts due
- Litigation costs inclusive of attorney fees
- Wage or Hour Class Actions
Employees who are victims of an employer’s action to deny them of their rightful compensation can join in a lawsuit against their employer. This lawsuit is referred to as a class action. Such a move helps employees seek legal aid to recover the sums due to them. It is especially beneficial to those who cannot otherwise afford to foot the legal bill on their own.
Penalties for Labor Law Violations
Wage or hour lawsuits and class actions seek compensation for the lost wages. A successful determination of culpability on the employer’s actions is penalized under a fine depending on the compensation issue presented to the court. Under any of the above suits (Wage or Hour Class Actions or Wage or Hour Lawsuits), you could seek redress for minimum wage or overtime violations. Further, you could also pursue penalties for willful misclassification of employees as independent contractors.
Willful misclassification of an employee as an independent contractor carries a penalty that ranges from $5,000 to $25,000 per violation. The employer pays these sums in full to the employee. This means that an employer cannot deduct any fees or charges that would have otherwise been deducted.
You are entitled to the payment of the sums owed if the matter before the court was a case of you as an employee being denied the full sums of your minimum wage or overtime. The court may further direct that interest accrued on the sums due plus attorney fees be added to the penalty imposed on an employer.
Some employers may decide to fire an employee because of the legal suit brought against them. Should your employer carry on with firing you, you can sue them with a wrongful termination suit. The lawsuit seeks damages for the premature termination of your employment.
What to Expect from an Attorney while Seeking a Recovery of your Unpaid Wages
Once your attorney takes up the matter, they will request several documents to verify specific information. Further, the information in these documents is also pivotal in your case against your employer.
Pay stubs, employment agreements, timesheets, arbitration agreements, as well as other pertinent documents, are considered vital information source points for your case. The idea is to look for a misclassification issue that denies you the wages due to you if you worked beyond your prescribed hours.
After an assessment of your case, your attorney will either take up or drop your case. If they take it up, their acceptance is succeeded by a series of actions, namely:
Sending a Demand Letter to Your Employer
The demand letter serves as a notice to your employer of the violations found. It enumerates the sums owed to you by the employer. This letter may serve as a notice for an individual employee or for all employees aggrieved by the employer’s actions if the case is a class action.
Call for a Settlement
Your attorney will have negotiations with your employer’s lawyers to determine if your employer wants to settle the matter out of court or through a trial. The out of court settlement only works if your employer agrees to pay an agreed-upon sum. Failure to which, you can sue your employer and have the matter determined by the federal courts.
The discovery process involves documenting evidence that would be used to prove your employer’s liability in the matter. This process includes obtaining relevant documents, deposing witnesses, and collecting evidence material to the case.
Trials can be unpredictable and often, may take several months if not years to prosecute. Such a tedious process is remedied by mediation to seek an out-of-court settlement, a second opportunity to stop the court proceedings. Events in your case inform your attorney's decisions during the out-of-court settlement meetings. Your employer will also prefer to settle the matter to avoid a trial verdict.
Reasons Why You Should Care If You are Misclassified as an Independent Contractor
An employee’s bottom line with regards to their earnings from work done is the primary reason why a misclassification is to the detriment of an employee. However, it is not the only reason. A misclassification may deprive you of insurance, medical, tax, and retirement packages. Benefits that an employee has access to.
No Access to Workers’ Compensation Insurance
Workers’ compensation insurance covers work-related injuries. That is, all costs in treating injuries sustained in the workplace are paid for by the insurance companies. However, this cover is only accessible by employees of an entity. Independent contractors are not covered under this policy.
Not a Candidate for Medical Benefits
Workplace medical programs are tailored to help employees. Some programs are structured to receive funding from both the employee and the employer. These medical schemes, therefore, have more funds to offset medical expenses than programs with one contributor. Independent contractors do not have access to such medical benefits.
These medical benefits extend to individuals who are disabled. The insurance packages offer disability benefits, as well as unemployment benefits.
Access to the Whistleblower Protections
An employer should not terminate your employment engagement on account of you suing or complaining about any violations within the company. However, if an employer goes ahead and reprimands you for informing the authorities, you can seek legal action against your employer under the whistleblower clause. Further, any efforts to terminate your relationship informed by a lawsuit against them can see them penalized. These penalties are as directed by the courts in the wrongful termination suit against your employer. Only an employee can access such legal actions and not an independent contractor.
Social Welfare Programs
Social welfare programs run on a part contribution from employees as well as employers. Such an arrangement can only be accessed under an employee and employer agreement.
Guarantee to Return to Work after a Medical Leave
An employee’s medical welfare is protected under law. The FMLA (Family Medical Leave Act), as well as the CFRA (California Family Rights Act), protects employees who go on medical leave. The provisions of these laws ensure that employees who are on medical leave resume their work upon the completion of their medical leave.
Locked Out from Profit Sharing Options
Employees can enter an arrangement with their employers where they share in the profits of the company. Further, they have an avenue to purchase company stocks. This arrangement allows employees to grow their bottom line.
Employees do not have to pay the full sums as stated in Medicare and Social Security taxes. This is a tax incentive they enjoy. Employees pay these taxes in part while their employers pay for the other portion. However, if you are classified as a 1099 independent contractor, you do not enjoy such benefits. You will be required to foot the tax costs from your pocket.
Employers save a significant portion of costs when they have contractual engagements rather than employment contracts. That is why the misclassification of employees as independent contractors is a growing problem. If you are a victim of such actions by your employer, present the matter to them. Explain your position as to why you feel your employment status of an independent contractor is not right. They should, at the very least, explain their actions. If your meeting with your employer fails to address your concerns, get in touch with the IRS.
Addressing Overtime Issues and Unpaid Dues with an Attorney Near Me
Denying you overtime pay and other employee benefits is a matter an employer may use to take advantage of your services. Many California employers prey on the fact that most individuals do not know their rights. In some cases, it is a simple error. Whether it was a case of a mistake or a deliberate effort by your employer to deny you fair compensation, your employer needs to pay the sums. We are ready to help. Get in touch with the Stop Unpaid Wages team at 424-781-8411.