Independent Contractors vs. Employees: What Workers Need to Know

If you’re working in a job that you suspect might not be classified correctly, it’s crucial to understand the difference between being an independent contractor and an employee. Many workers are misclassified as independent contractors, which can have significant consequences on their rights, benefits, and financial security. Misclassification often occurs when an employer intentionally or unintentionally labels you as an independent contractor instead of an employee, potentially depriving you of important protections and benefits you’re legally entitled to.

This article will walk you through the legal differences between independent contractors and employees, explain how misclassification can hurt you, and offer steps you can take to protect yourself and ensure you're classified properly.

It’s important to first understand the difference between independent contractors and employees, as this classification impacts many of your legal rights.

As an employee, you work directly for an employer, and they have control over how, when, and where you do your job. In exchange for your work, you’re entitled to various legal protections and benefits. These may include:

• Employee Benefits: Health insurance, paid leave, and retirement contributions are typically provided.
• Wages and Taxes: Your employer is responsible for withholding taxes, including Social Security and Medicare, from your paycheck.
• Legal Protections: Employees are covered by a variety of labor laws, including the Family and Medical Leave Act (FMLA), minimum wage laws, overtime pay, and workplace anti-discrimination protections.
• Job Security: Employees generally have more job security and legal protections against wrongful termination.

Independent contractors, on the other hand, are not controlled by the company in the same way. You are typically self-employed, performing specific services for a company under a contract. As an independent contractor, you’re responsible for paying your own taxes, and you are generally not entitled to employee benefits or protections. Key features of being an independent contractor include:

• Autonomy: You control how and when you do your work, and you may work for multiple clients.
• Taxes: You are responsible for handling your own taxes, including self-employment taxes.
• No Benefits: You don’t receive benefits like paid time off, health insurance, or retirement plans.
• Limited Legal Protections: You are not covered by labor laws that protect employees, such as overtime pay, anti-discrimination laws, and workers' compensation.

Many employers will misclassify workers as independent contractors to avoid paying taxes, benefits, and other costs associated with employees. While this may benefit the employer, it can have serious consequences for you as a worker. If you’re misclassified, you may lose out on crucial benefits and protections, including:

No Paid Benefits

If you're classified as an independent contractor, you won’t be eligible for paid sick leave, vacation days, health insurance, or retirement benefits. Without these protections, you may find yourself financially vulnerable, especially if you need medical care or time off for personal or family reasons.

Higher Taxes

Independent contractors are responsible for paying both the employer and employee portions of Social Security and Medicare taxes. This can result in a significant tax burden, especially if you’re not prepared to handle these obligations on your own.

No Overtime Pay

Employees are entitled to overtime pay for hours worked beyond 40 hours in a week, but independent contractors are not. If you’re misclassified, you may be working long hours without the legal right to receive overtime compensation for the extra time.

Lack of Job Security

Independent contractors typically have less job security than employees. You may be hired for a specific project or contract, and once it’s completed, the employer can terminate the relationship without notice. Employees, however, often have more job stability and are entitled to unemployment benefits if they lose their job.

Ineligibility for Workers’ Compensation

If you’re injured while working, independent contractors are generally not eligible for workers' compensation benefits. Employees, on the other hand, are protected by workers’ compensation laws and can receive medical treatment and compensation for work-related injuries.

Limited Legal Protections

Independent contractors are not covered by the same anti-discrimination laws that protect employees. For example, if you face harassment or discrimination on the job, you may not have the legal recourse available to employees, such as filing a complaint with the Equal Employment Opportunity Commission (EEOC).

It’s important to be able to recognize if your employer has misclassified you. While some companies may intentionally misclassify workers to avoid obligations, others may do so unknowingly. Regardless of intent, misclassification can have serious consequences for you as a worker.

Here are some signs that you may have been misclassified as an independent contractor:

• Lack of Control: If your employer tells you exactly when and how to do your job (hours, methods, location), it’s more likely that you should be classified as an employee.
• Regular and Ongoing Work: If you work regularly and consistently for the same employer without much flexibility, you may be an employee, not an independent contractor.
• Use of Employer’s Tools and Equipment: If the employer provides all the tools, equipment, and supplies you use for your work, this is another indication that you may be misclassified.
• Exclusive Relationship: If you work exclusively for one employer and the relationship seems long-term, you’re probably an employee.
• Entitlement to Benefits: If you receive benefits like health insurance or paid time off, but you are still called an independent contractor, your classification is likely incorrect.

If you suspect you’ve been misclassified, there are several steps you can take to protect yourself and ensure that you’re being treated fairly.

Review Your Contract

Carefully review the contract or agreement you have with your employer. Does it specify that you’re an independent contractor? Does it mention benefits, overtime pay, or job security? If your contract is unclear or seems to treat you like an employee while labeling you as an independent contractor, this could be a sign of misclassification.

Document Your Work Conditions

Keep a record of your work hours, tasks, and any communications with your employer about how your job is performed. If your employer has significant control over your work, or if you’re performing duties consistent with an employee, this could be useful evidence if you need to file a claim.

Consult an Employment Lawyer

If you’re unsure about your classification or suspect that you’ve been misclassified, consult with an experienced employment lawyer. An attorney can help you understand your rights and determine whether you should be classified as an employee instead of an independent contractor. If your classification is wrong, a lawyer can help you pursue back pay, benefits, and other compensations you may be entitled to.

File a Complaint with the IRS or Your State’s Labor Department

If you believe you’ve been misclassified, you can file a complaint with the IRS or your state’s labor department. The IRS provides a form (SS-8) to help workers determine whether they are classified correctly. Your state’s labor department may also have resources or a process for handling worker misclassification.

Request Reclassification

If you feel comfortable, you can request that your employer reclassify you as an employee. This can involve discussing the issue directly with your employer and explaining how your working conditions align more with those of an employee than an independent contractor. It’s essential to approach this conversation carefully and understand your rights before making a request.

If you’re working as an independent contractor but believe you should be classified as an employee, it’s important to take action to protect your rights. Misclassification can deprive you of important legal protections, benefits, and tax advantages that employees are entitled to. Understanding the legal differences between independent contractors and employees is crucial for ensuring that you are being treated fairly and receiving the benefits you deserve.

If you believe you’ve been misclassified, don’t hesitate to seek legal advice. By taking the necessary steps to protect yourself, you can ensure that you’re receiving the proper classification and legal protections.

Call Blair & Ramirez LLP or contact us online today to schedule a free case evaluation with one of our experienced Los Angeles employment lawyers.