Employers continue to misclassify workers as independent contractors, and not correctly as employees, in order to avoid paying overtime and provide employee benefits.
In fact, Lebau & Neuworth recently sued the same employer on three separate occasions over a five-year period because it continued to misclassify its employees. In all, we recovered nearly $600,000 for over 100 employees. Hopefully, the employer has now learned its lesson.
Workers oftentimes do not know their rights and protections the law provides them regarding their “employee status.” The U.S. Department of Labor just days ago released a “12-Point Misclassification Mythbusters” document. The 12 misclassification myths identified by the Labor Department are:
Our favorites our myths Nos. 3 and 5. The U.S. Department of Labor cracks open those myths, explaining:
FACT No. 3: Receiving a 1099 does not make you an independent contractor under the FLSA.
You may be an independent contractor if your work does not fall within a law’s definition of employment. Similarly, you are an employee if your work falls within a law’s definition of employment. Receiving a 1099 tax form is simply the result of how your employer classifies you for federal tax purposes, but the form itself does not mean you are correctly classified as an independent contractor for federal tax purposes. And, receipt of a 1099 is irrelevant to determining whether you are an employee under the FLSA or the FMLA.
Example: Taxes
Under federal tax laws, you are not an independent contractor for tax purposes just because you receive a 1099. What matters is whether the person receiving your services has the right to control how you perform your work. To learn more about whether you are an independent contractor or employee for federal tax purposes, please visit the IRS’ website.
Example: Minimum Wage, Overtime, and other FLSA Protections
Receiving a 1099 does not make you an independent contractor under the FLSA. In fact, whether you receive a 1099 is irrelevant. Under the FLSA, you are an employee if your work indicates you are economically dependent on an employer. On the other hand, you are an independent contractor if, as a matter of economic reality, you are in business for yourself. It is important to remember that you can be an employee under the FLSA even if the IRS considers you an independent contractor. To learn more about whether you are an employee or independent contractor under the FLSA, please visit the DOL Misclassification Initiative page.
FACT #5: Signing an independent contractor agreement does not make you an independent contractor under the FLSA.
As a condition to being allowed to work, employers sometimes require workers to sign an agreement stating that the worker is an independent contractor. Under the FLSA, FMLA, and MSPA, you are an employee if, as a matter of economic reality, your work indicates that you are economically dependent on an employer, and you are an independent contractor if you are in business for yourself. Any label that you or the employer give to the relationship, even in an agreement signed by you, is irrelevant. Instead, what matters is whether the reality of the situation indicates that you are economically dependent on the employer (i.e., you are an employee) or in business for yourself (i.e., you are an independent contractor).
Similarly, for federal tax purposes, signing an independent contractor agreement does not make you an independent contractor. It may be just one relevant fact in determining the relationship of the parties.
To better understand how different laws determine whether you are an employee, the benefits and protections these laws provide to employees and what they require of employers, please see Myth No. 1.
So, who are you going to call if you have any mythbusting questions on employment and/or employee benefits law? The answer should be the attorneys at Lebau & Neuworth at at (410) 296-3030 or lebauneuworth.com/contact-us.