Worker misclassification occurs when employers label workers as independent contractors instead of employees to avoid paying benefits, overtime, and payroll taxes. If you're treated like an employee but classified as a contractor, you may be owed substantial back wages and benefits.
Employee vs. Independent Contractor
The distinction between employees and independent contractors affects nearly every aspect of workplace law. Employees receive minimum wage, overtime, workers' compensation, unemployment insurance, and legal protections that contractors don't. Employers save 20-30% by misclassifying workers.
What you're called doesn't determine your status—the actual nature of your working relationship does. Signing a contract saying you're an independent contractor doesn't make you one if the reality of your work says otherwise.
Tests for Worker Classification
Different agencies use different tests, but common factors include control over how work is performed (employees take direction; contractors control their methods), investment in equipment (contractors provide their own tools), opportunity for profit or loss (contractors have business risk), skill required (contractors have specialized, independent expertise), and permanence of the relationship (employees have ongoing relationships).
The ABC test used by many states and the Department of Labor presumes workers are employees unless the employer proves all three factors: the worker is free from control, performs work outside the employer's usual business, and has an independent business in that field. The ABC test makes misclassification harder to justify.
Signs You're Misclassified
You're likely an employee if your employer controls when, where, and how you work. Setting your schedule, requiring you to work on-site, and dictating your methods are hallmarks of employment. True contractors have autonomy over how they complete their work.
Other indicators include receiving training from the employer, using employer-provided equipment, working only for one company, being paid hourly or salary rather than per project, and performing work that's central to the employer's business. A "contractor" who works 40 hours weekly at company headquarters is probably an employee.
Industries with Widespread Misclassification
Certain industries are notorious for misclassification. Construction companies frequently misclassify workers to avoid workers' comp and payroll taxes. Gig economy companies have built business models around classifying workers as contractors, though legal challenges have achieved mixed results.
Trucking, home healthcare, cleaning services, tech, and entertainment industries all have significant misclassification problems. If you work in these fields, scrutinize your classification carefully.
What You're Owed If Misclassified
Misclassified employees can recover unpaid overtime—contractors aren't subject to overtime requirements, so employers often work them 50-60 hours weekly. If you should have been an employee, you're owed time-and-a-half for all hours over 40.
You may also recover unpaid minimum wage (especially after accounting for expenses contractors must cover themselves), unreimbursed business expenses that should have been employer-paid, unpaid sick leave or vacation if state law requires it, and retirement or health benefits you were wrongly denied.
Liquidated damages under wage laws can double your recovery. You may also have claims for workers' compensation if you were injured while misclassified.
Tax Implications
Independent contractors pay both employee and employer portions of Social Security and Medicare taxes—roughly 15.3% combined. Misclassified workers overpay taxes by about 7.65% because employers should cover half.
You can file IRS Form SS-8 to have the IRS determine your proper classification. If the IRS agrees you're an employee, they may require the employer to pay back taxes and you may receive refunds for overpayment.
Retaliation Protections
It's illegal for employers to retaliate against workers who assert misclassification claims. If you're fired, demoted, or have hours cut after complaining about classification, you may have a separate retaliation claim. Document any adverse actions that follow your complaints.
Filing a Claim
You can report misclassification to multiple agencies. The Department of Labor investigates wage violations. The IRS examines tax issues. State labor departments often have their own enforcement mechanisms. Filing with multiple agencies can trigger broader investigations that benefit other misclassified workers.
Private lawsuits allow for greater damages than agency complaints. Class or collective actions can combine claims from many misclassified workers at the same company.
Getting Legal Help
Misclassification cases require analyzing complex legal tests and calculating owed wages. Employment attorneys experienced in wage claims can evaluate your situation, determine which claims apply, and pursue maximum recovery through the most effective channels.