Some employers like to classify their workers as ‘independent contractors’ and not as employees because it helps the employers save thousands of dollars annually. If you are classified as an independent contractor instead of an employee by your employer, you might have to pay a heavy tax. It is a common mistake, and there are ways to fix the problem. An employee gets various benefits such as a reduction on Social Security and Medicare taxes, which an independent contractor does not. Continue reading this article to find out what you can do if you are misclassified as an independent contractor.
What Are The Downsides?
There are multiple downsides to losing your employee status. One might not realize the perks of being an employee that one would not have access to otherwise. Employers must pay half of Social Security taxes and Medicare taxes for employees but not for independent contractors. Therefore, an employer saves a lot of money by classifying workers as independent contractors instead of employees.
- If one is not considered an employee, the employer won’t have to pay for unemployment insurance or workers’ compensation benefits. That is why it is beneficial for an employer but not for the employee.
- When an employee is treated as an independent contractor, he would not have the workplace rights that employees usually have, such as a right to a minimum wage, overtime pay, vacation pay, pension plans, job training, and more.
Talk to Your Employer:
When one is in such a compromising position, one can’t help but wonder how to fix the situation. The goal is to talk to the employer to change one’s employment status. First, talk to your employer to see if he will review the matter and reclassify you as an employee. Next, explain the fact that you’ve been wrongly classified as an independent contractor. The conversation will help you understand why your employer thinks you are a contractor and not an employee.
Get The IRS Involved:
If the talk with your employer fails to yield fruitful results, you might have to take a different approach to resolve the issue. Now you must contact the IRS to determine your employment status for federal tax purposes. There is no fee for filing IRS forms, so workers who think they have been misclassified as independent contractors may contact IRS without hesitation. However, be mindful of the possibility that IRS may disclose your identity to your employer, who will not be pleased with the legal situation at hand for obvious reasons.
File an Unemployment Insurance Claim:
If you are fired from a job recently, you may file an employment insurance claim. First, you will need to explain to the unemployment agency that you’ve been misclassified as a contractor instead of an employee. The unemployment agency will investigate the independent contractor misclassification claims. Once the agency determines that you should be considered an employee, you will be entitled to unemployment insurance. In addition to that, your employer will have to pay a heavy penalty for the misconduct.