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Can an independent contractor of three years claim unemployment benefits?

Hayward, CA |

This is my first time being a contractor. I was an independent contractor for three years. I was laidoff and haven't found a job in a few months. I have no more saved income to help me. Ive been living off the money i was going to use to pay off my taxes with and I haven't filed my taxes since i started working with them. They also didnt take taxes out of my paycheck so i know i have to pay on the taxes that weren't taken out. I dont know my options for this and hope i can recieve some helpful advice and information to follow.

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Attorney answers 4

Best Answer

If the company mis-classified you as an independent contractor, you can argue that you were an employee and are entitled to unemployment. The legal test for employment, generally, is whether the employer exercised control over your work - were you directed when to complete the work and how to do it. There are other factors that are looked at as well - did you work in an office, did you use the company's equipment... You should talk with an attorney - you may have a shot at getting unemployment.


The issue is whether you really were an independent contractor or actually acted in the capacity of employee. If you were full time only for this company or individual and they told you when you would work and what you would do you may rally has been an employee not an independent contractor. If you file a request for unemployment benefits they will probably object and you can have a hearing and a decision will be made whether or not you can qualify for benefits.

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If you were improperly classified as an independent contractor when in fact you were an employee, the employer will be liable for contributions to your Social Security account, unemployment account, state and federal taxes, and more. You will still have to pay your share of taxes. The employer will also be subject to various fines and penalties; some of those penalties will be paid to you, and can amount to a good amount of money.

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) *** All legal actions have time limits, called statutes of limitation. If you miss the deadline for filing your claim, you will lose the opportunity to pursue your case. Please consult with an experienced employment attorney as soon as possible to better preserve your rights. *** Marilynn Mika Spencer provides information on Avvo as a service to the public, primarily when general information may be of assistance. Avvo is not an appropriate forum for an in-depth response or a detailed analysis. These comments are for information only and should not be considered legal advice. Legal advice must pertain to specific, detailed facts. No attorney-client relationship is created based on this information exchange. *** Marilynn Mika Spencer is licensed to practice law before all state and federal courts in California, and can appear before administrative agencies throughout the country. She is eligible to represent clients in other states on a pro hac vice basis. ***

Marilynn Mika Spencer

Marilynn Mika Spencer


(continued from Answer above) If the worker is an employee, the employer must withhold income tax and the employee’s portion of Social Security and Medicare taxes. The employer must pay Social Security, Medicare and unemployment (FUTA) taxes on the wages the worker earns. The employer must give the worker an IRS Form W-2, Wage and Tax Statement, every year showing the amount of wages paid and taxes withheld from the worker’s pay. As an employee, the worker has the right to deduct unreimbursed business expenses from the worker’s taxes on IRS Schedule A if the worker itemizes deductions and meets the other requirements established by the IRS. If the worker is an independent contractor, the employer must give the worker an IRS Form 1099-MISC Miscellaneous Income to report what it has paid to the worker. The worker must pay his or her own income tax and self-employment tax, and may be required to make estimated tax payments during the year. The worker can deduct business expenses on IRS Schedule C of his or her income tax return. CALIFORNIA LAW: The main test in California is who has the right to direct and control the “manner and means” in which the job is performed. This is similar to the IRS’ Behavioral Control described above. California then looks at secondary factors, which include: Are the services provided on a long-term or repeating basis? Is the worker paid based on the time spent working? Are the services an integral part of the employer’s business? Does the employer establish the work hours? Does the employer determine how many hours will be worked? Does the employer dictate the order in which job tasks are to be performed? Does the worker spend all of his or her time working for one employer? Is the worker supervised? All of these factors tend to show the worker is an EMPLOYEE. Is the worker in a distinct occupation or trade? Are the worker’s services available to the general public? Can the worker hire, supervise and pay assistants? Did the worker make a substantial investment in facilities or services? Does the worker do the job without supervision? Is the worker highly skilled or working in a specialized field? Does the worker supply the tools and other materials used to do the job? Does the worker provide the location in which the work is performed? Is the worker paid at the end of the project? All of these factors tend to show the worker is an INDEPENDENT CONTRACTOR. Also under California law, an employer can be fined for “willfully misclassifying” an employee as an independent contractor. The amount of the fine ranges from $5,000 to $15,000 per violation. If there is a “pattern and practice” of willful misclassification, the fine can increase to $25,000 per violation. I recommend you consult with one or more experienced employment law attorneys with whom you can discuss the details of your situation. To find a plaintiffs employment attorney in California, please go to the web site of the California Employment Lawyers Association (CELA). CELA is the largest and most influential bar association in the state for attorneys who represent working people. The web site is Click on "Find a CELA Member" and you can search by location and practice area. Many CELA attorneys represent clients throughout the state. I hope you can resolve your situation and wish you the best.


Unfortunately, in every state, a portion of "payroll taxes" that an employer takes out of each employees check in addition to Social Security and Med Pay is a portion for FUTA which relates to unemployment benefits. If you were employed as an independent contractor by an employer who misclassified you as you were really an employee given the degree of control the employer exercised over the terms and conditions of the job, you could apply and might be given benefits if you had been misclassified. As an employee, it is not you, but the employer who is responsible to pay for that deduction. The state could pursue the employer for unpaid contributions for FUTA. If you were working for yourself as an independent contractor owing your own business, you are out of luck. If you were an employee entitled to benefits, you may open yourself up for problems because you failed to pay income tax on wages earned. Your employer might be required to issue you a W-2 on the estimated income in order to make such an amended filing. Unfortunately, the taxes you owe might exceed any benefits do you making this a difficult decision to make without more information.
Many employers do violate the law through misclassification to avoid not only the 7.45% payroll tax but other things such as workers' compensation. It is a problem for the states as misclassification or "paying workers under the table," results in enormous loss of taxes as well as problems like this where you might have to seek other types of financial help such as food stamps, etc. due to lack of money. Best of luck.