What is Misclassification?

Legal content fact checked by Charles E. Joseph

When an employer wrongly classifies you as an independent contractor, you can miss out on pay, benefits, and job protections.

And the misclassification of employees as independent contractors hurts workers. In fact, research shows that it can cost workers up to 34% of their pay, according to the Economic Policy Institute.

What is misclassification? And what can you do about it? Our FAQ will help you understand your rights and the damages for misclassification.

What is employee misclassification?

Misclassification means incorrectly paying someone as an independent contractor instead of an employee.

When employers misclassify workers, they pay fewer taxes and benefits. Employers also don’t have to follow certain worker protections.

For workers, misclassification can mean lower wages, fewer job protections, and no benefits. Plus, independent contractors typically don’t qualify for unemployment benefits.

Sometimes companies unintentionally label people independent contractors instead of employees. In many cases, employers intentionally violate the law to save money.

What is an independent contractor vs. employee?

How can you know if you’ve been misclassified as an independent contractor? It can be tricky to figure out whether your employer broke the law.

Here are some questions to ask yourself:

Does the company control when, where, and how you perform your work?
Are you economically dependent on this single employer for your income?
Is the work you do a core part of the company’s business?
Does the company provide you with equipment, tools, or supplies to do your job?
Is your working relationship with the company ongoing, rather than for a specific project or time period?

If you answer “yes” to most of these questions, you are likely an employee and not an independent contractor. That means you’ve been misclassified and are likely owed money.

Keep in mind that worker classification depends on various factors, and these questions are just a starting point. If you’re not sure, an employee misclassification attorney can provide guidance.

What is the ABC test for independent contractors?

Many states use the ABC test for independent contractors. This quick test determines whether you’re actually self-employed or you should be considered an employee.

True independent contractors pass the ABC test:

A: You work without the direction and control of the employer.

B: You work outside the usual course of the employer’s business.

C: You’re self-employed and have your own business doing that kind of work.

The ABC test is a good starting point, but there are several other independent contractor vs. employee tests.

What are other independent contractor vs. employee tests?

Your status as an independent contractor vs. employee affects your pay, worker protections, and tax requirements. That’s why the IRS has rules for self-employed vs. employee taxes.

The U.S. Department of Labor also has resources on determining whether you’re an independent contractor vs. employee.

Here’s another test: if your company tells you where to work or what time you have to work, you are likely an employee, not an independent contractor. It doesn’t matter what your employer says you are, it matters what you actually have to do or can’t do.

When it comes to filing a 1099 misclassification lawsuit, the test depends on state and local law. An employee misclassification attorney can help you determine whether you qualify for damages for misclassification.

What are the damages for misclassification of employees?

The damages for misclassification can be significant. That’s because you’ve missed out on minimum wage, overtime, and tax protections that apply to employees but not self-employed workers.

Depending on your case, damages can include:

Unpaid overtime wages – you receive double damages
Unpaid minimum wages – you receive double damages
Your share of the employer’s Social Security and Medicare taxes
Penalties for failing to provide meal and rest breaks
Monetary value of benefits like health insurance and retirement plans

When you add up the damages, it can be tens of thousands of dollars, and in some cases more, especially if you were misclassified for a long time.

Want to know more? Check out our FAQ on How much can you sue an employer for misclassification?

How to Report a Business for Misclassification of Employees

If you’ve experienced misclassification, you have options. First, you can contact your state’s employment agency to file a complaint. You can also report misclassification to the Department of Labor, which has a Wage and Hour Division hotline.

You can also contact an employee misclassification attorney to review your case. Misclassification lawyers know the laws in your state and can help you determine whether a 1099 misclassification lawsuit is the best way to recover damages.

Read more about independent contractor protections or contact an employee misclassification lawyer to ask about your case.

Charles Joseph offers free, confidential consultations to victims of misclassification. Charles Joseph brings over two decades of experience as a hostile work environment attorney and founder of Joseph & Kirschenbaum. His firm has recovered over $140 million for clients.