The company I am working for is paying me with a 1099 form when I believe I should be treated as an employee with a W-2. I'm an outside sales representative that works exclusively for this company and am required to go to company meetings. I file my own taxes, I do not get compensated for gasoline, no employee benefits. I pay for my tools for work, etc. Is all this illegal? If so, can I sue?
Whether someone is an employee or an independent contractor can be a very fact-intensive analysis, though most of the time, it's pretty clear which category someone falls in. The general rule is that a person is an independent contractor if the employer has the right to control or direct the RESULTS of the work but not HOW the work is done or even WHAT work is done.
Many employers misclassify workers as independent contractors and pay them as "1099 employees" when in fact they should be classified and paid as regular W-2 employees. Employers receive a substantial benefit from doing this, but there is NO benefit to the workers. If a worker is wrongly classified as an independent contractor instead of an employee, that worker will not be eligible for many benefits of employment or eligibility will be reduced. Areas affected include the right to:
– be paid for all hours worked or controlled by the employer;
– the legal minimum wage;
– overtime pay;
– rest and meal breaks;
– workers' compensation insurance;
– Social Security contributions;
– unemployment benefits;
– state disability benefits;
– employer benefits such as vacation, sick leave, pension, medical insurance, etc.
Also, in some states, including California, employers are subject to a penalty if they misclassify employees as independent contractors (see below).
There are different ways to determine if a worker is an employee or independent contractor. Employers must comply with all relevant laws.
FEDERAL TAX LAW: The Internal Revenue Service (IRS) looks at three areas to determine a worker’s status:
Behavioral Control – This area considers instructions and training. If the employer has the right to direct or control the work, even if it does not exercise that right, the worker is an employee. These instructions might include when to do the work, or how and where to do it; what equipment or tools to use; who the worker can hire or not hire to help get the work done; what supplies and services to buy, and/or where to buy them. If the employer trains the worker in required methods of doing the work or the procedures to get the work done, this is evidence the employer wants things done its way, which indicates the worker is an employee and not an independent contractor. Therefore, if the employer gives the worker detailed or extensive instructions on how to get the job done, the worker is probably an employee and not an independent contractor.
Financial Control – This area considers who has the right to direct and control the business, not just the work. The more of a financial or promotional investment the worker has made in the work, the more likely the worker is an independent contractor. However, there is no requirement for an investment in order to meet the definition of independent contractor. If the worker incurs expenses in performing the work but is not completely reimbursed, the worker is more likely to be an independent contractor rather than an employee, especially if these expenses are high. If the worker has the chance to make a profit or loss on the work, the worker is probably in business for himself or herself and therefore an independent contractor.
Relationship of the Parties – If the worker does not receive benefits such as medical coverage, vacation, or pension, the worker may be an employee or an independent contractor. However, if the worker receives benefits, the worker is probably an employee.
(continued in Comment below)
It's impossible to give you a definitive answer based on just the information you provided above. There are several factors to consider in determining whether you have been improperly classified. However, keep in mind that your employer bears the burden of proving that you are an independent contractor. And California has recently enacted some very tough laws to punish employers who willfully misclassify employees as independent contractors.
You should contact an experienced California employment law attorney regarding your specific situation.
While I agree with my colleague's in depth answer, the most important factor is whether the employer has a "right of control" over the day to day activities of the employee. This is the rule of thumb that usually works in answering the question. If the employer has the ability to control the employee's work, even if they do not exercise it, the individual will usually be considered an employee. If the individual controls his or her work without employer control, they will be considered an independent contractor.
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