Recently the Department of Labor (DOL) published guidelines on continuing hot topic worker misclassification issues. Many myths and facts have been misconstrued over these new guidelines causing quite a bit of confusion for employers. Here's 10 myths surrounding the new worker misclassifcation guidelines debunked.
MYTH #1: If I am an independent contractor (IC) under one law, I am an IC under other laws.
FACT #1: Even if you are a legitimate IC under one law, you may still be an employee under other laws.
Comment: State laws and federal laws vary on IC classifications. For example, you could be an IC under the Fair Labor Standards Act (FLSA) but not under Wisconsin law since Wisconsin has a different set of IC tests. Conversely, you might satisfy the IC tests under state law, but not the FLSA.
MYTH #2: If I am classified as an IC, I am not eligible for unemployment insurance (UI).
FACT #2: You may still qualify for UI even if you are classified as an IC.
Comment: Each state follows its statutes, regulations or policies to determine whether an employer-employee relationship exists. Even if you are considered to be an IC by a business entity the state UI agency will make a determination as to whether that classification is correct under its laws or whether you are an employee and eligible for UI. Being classified as an IC does not prohibit you from seeking UI benefits either. I know of many instances where disgruntled ICs try for UI benefits after the business relationship ends; at times the IC or state agency will attempt to unwind the existing IC agreement.
MYTH #3: I received a 1099 tax form from my employer, and this makes me an IC.
FACT #3: Receiving a 1099 does not make you an IC.
Comment: A 1099 is simply how the employer has classified the working relationship; it does not determine the legal or correct classification of the working (ie., employee vs. IC) relationship. Also, receipt of a 1099 is irrelevant to determining whether you are an employee under various other federal laws. One important criteria is whether the entity receiving the IC services has the right to control how the IC performs his/her work. A person can be an employee under the FLSA even if the IRS considers that person to be an IC.
MYTH #4: It does not make a difference if I am classified as an IC or an employee.
FACT #4: If you are misclassified as an IC, you may be denied benefits and protections to which employees are legally entitled.
Comment: If you can be an employee, you don’t want to be classified as an IC since ICs are nearly always excluded from access to important benefits and protections under certain federal, state, and local laws.
MYTH #5: I am an IC because I signed an IC agreement.
FACT #5: Signing an IC agreement does not make you an IC.
Comment: There are employers that think that simply getting persons to agree to sign IC agreements makes them ICs. That not only is wrong, it is not legally binding. You still have to put the working relationship through the various state and federal IC tests. What matters is whether the reality of the situation indicates that the person is economically dependent on the employer (an employee) or in business for yourself (an independent contractor).
MYTH #6: I am not on the payroll, so I am not an employee.
FACT #6: Even if you are not on the payroll, you may still be an employee.
Comment: Again, the actions of the employer do not control the proper legal classification. You are an employee if your work falls within a law’s definition of employment even if the employer fails or refuses to recognize this fact and the person can pursue/seek benefits and other protections afforded employees.
MYTH #7: I have my own employer identification number (EIN) or paperwork stating that I am performing services as a Limited Liability Corporation (LLC) or other business entity. This means that I am an IC.
FACT #7: An EIN or paperwork stating that you are performing services as an LLC or other business entity does not make you an IC.
Comment: Having your own EIN or paperwork stating that you are performing services as an LLC, sole proprietorship, or other type of business does not by itself make you an IC. It is only one of several tests that must be examined to determine the proper legal working relationship.
MYTH #8: My employer wants me to be an IC, and that means I am not an employee.
FACT #8: Your employer cannot misclassify you for any reason.
Comment: Again, your employer cannot classify you as an IC just because it wants you to be an IC to save money or costs from its end. You are an employee if your work falls within a law’s definition of employment or if you are to be classified as an IC, you must pass the requisite number of IC tests.
MYTH #9: I telework or work off-site, so I am an IC.
FACT #9: You are not an IC simply because you work off-site or from home.
Comment: Working away from your worksite, such as from your home or telework, does not necessarily make you an independent contractor. The same applies for remote workers. You may be an employee or IC in any of these three situations; it depends on the entire nature of the working relationship.
MYTH #10: I have been an IC for years; this means I will continue to be an IC.
FACT #10: Being a bona fide IC in the past does not mean you will always be an IC.
Comment: If the nature of your work relationship changes, the proper classification of your working relationship may also change.
MYTH #11: I operate a franchise. This means that I am an IC.
FACT #11: Operating a franchise does not make you an IC.
Comment: Operating a franchise does not make you an IC; your working relationship determines whether you are an IC.
MYTH #12: I am an IC because it is established practice in my industry to classify workers like me as ICs.
FACT #12: “Common industry practice” is not an excuse to misclassify under the FLSA.
Comment: This is a common misperception. Regardless of the industry practice, it is the nature of your working relationship that controls your classification.