It has become more common for employers to try and hire workers on an independent contractor basis rather than as an employee. Misclassification of independent contractors is a problem that federal and state agencies are taking seriously. Employers receive a number of benefits from classifying workers as independent contractors. Independent contractors are not covered by various employment laws including Title VII of the Civil Rights Act of 1964, the Fair Labor Standards Act, and the Family Medical Leave Act. Employers are also relieved from the duty of paying their half of payroll taxes. Normally, employers pay half of the payroll tax (for Social Security, Medicare etc.) and the employees pay half. When an employer hires an independent contractor the independent contractor is responsible for the entire payroll tax burden.
Self employed individuals may be able to deduct some part of the payroll taxes from their income tax liability. See the basic information contained here.
Because of the potentially large amount of taxes that can be shifted from the employer to employee, the first thing a potentially misclassified independent contractor could do is get the IRS to weigh in on the subject. IRS Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding is a form that the IRS provides so workers and employers can get the agency’s opinion on whether a particular worker or set of workers have been properly classified. Once a form SS-8 has been filed, the IRS will contact the filer within 90 days to process the request. Filing an SS-8 is not anonymous. It is very possible that if you file an SS-8 while on the job your employer will find out. Form SS-8 should be filed with the District Director in the district where the employer’s home office is located. The appropriate address for filing may be obtained by calling the I.R.S. and providing them with the employer’s nine-digit Federal identification number. The first two digits in this number reveal the company’s home office district.
Once a determination has been made, then there are procedures that an employee can follow to rectify overpayment of payroll taxes.
These procedures are complicated and outside the scope of a blog post. Here is a great article that talks about how misclassified employees may be able to avoid paying any self-employment tax and how they possibly may avoid paying the employee’s half of FICA tax as well.
As mentioned above, misclassified independent contractors may be entitled to certain wage and job protections that they have been denied while misclassified as independent contractor. It might be worthwhile talking to an employment lawyer about any pay or damages to which a misclassified independent contractor may be entitled. This is especially true for minimum wage and/or overtime. Independent contractors commonly work on a commission or fee-for-service basis. Independent contractors may work long hours (over 40 in a week) without being paid the required overtime differential on all forms of payment including commissions. Independent contractors may also work long hours without making much money effectively making less than the federal minimum wage of $7.25 an hour. If an employee was misclassified then they may be owed back pay as well as liquidated damages.
This is not legal advice. This page does not create an attorney-client relationship between the reader and Attorney Benjamin Kandy. Please see our disclaimer page. If you are located in the Atlanta area and believe you have been misclassified as an independent contractor, contact Attorney Benjamin Kandy to discuss your legal options.