Every year, wage theft robs millions of American workers of billions of dollars—and worker misclassification is one of its most widespread, evil forms.
There are crystal-clear guidelines on the difference between independent contractors and employees. And a lot of employers steal from their workers by ignoring them. Today, I’m going to break the differences down for you. See if you recognize yourself, a friend, or a family member in these wage-theft-vulnerable positions.
If you are in a misclassification situation, your employer has stolen your wages. But there’s good news! You have recourse to get my two favorite things: money and justice! You can seek tax reimbursements, backpay, unpaid overtime, worker’s compensation benefits, and more for the years you were misclassified. And you can report your exploitative employer and get them into a wet mess of trouble.
Not to toot my own horn, but did you notice how I managed to say “misclassification situation” and not follow it with “truly an inspiration, it’ll be a sensation, we’ll have a Dalmatian plantation?”
And did you further notice that I didn’t go on a secondary digression about how Anita from 101 Dalmatians can absolutely get it? Yeah, that’s because I’m a professional. I’m on-topic as shit. Plus, it’s not really even debatable…
Note: Sorry, international readers! We’re talking exclusively about American labor law today. Go grab a non-cheeseburger food item of your choice and come back next week.
What is worker misclassification?
Broadly, the two most common classifications for workers are independent contractors and employees. The former files taxes with a 1099 tax form, the latter with a W-2.
Independent contractors are self-employed. They run their own businesses selling their services to clients. Essentially, they’re mercenaries. They have a unique relationship with employers who contract with them as one business to another. The businesses that pay them are their clients, not their bosses.
Employees, on the other hand, are people who provide services to an employer by acting as a part of that company. And that’s true whether they’re classified as part-time or full-time employees.
It sounds straightforward. And it is. Which is why it’s so galling that so many employers have used deliberate worker misclassification to bloat their already massive profits.
Why do employers misclassify workers?
I think there are three key differences between independent contractors and employees that make the former more attractive from an employer’s point of view.
First, independent contractors cost employers less money because they pay a greater burden of taxes. When you pay taxes, you’re paying for three big things: income taxes, Social Security, and Medicare. If you’re an employee, your employer must pay half of your social security and Medicare taxes. But independent contractors must pay for all of it, on their own. It adds 15.3% onto their normal income taxes—and spares employers from paying that expense.
(If you’ve ever heard someone gripe about “self-employment taxes,” this is what they’re talking about. I can verify from personal experience that it’s incredibly painful for low-income self-employed people to make $100 and owe $27 of it to the same government that lets billionaires pay diddly-squat.)
Second, employers are not obliged to provide benefits to independent contractors that would be customary to full-time employees. This includes health insurance, disability insurance, 401(k) matching, paid sick days, paid vacation days, parental leave, additional overtime compensation, and many other benefits. Obviously, this saves them many metric fucktons of money.
Third, independent contractors don’t have as many pesky legal protections as employees. Independent contractors can’t form or join unions. They aren’t protected by major legislation like the Americans With Disabilities Act (ADA). They have a lot less power within the company than true employees.
Are there fines and penalties for misclassification? Yes. But I’d wager the fines end up being cheaper than the savings of breaking the law. And it’s not like the police give a shit about stopping wage theft! It’s a civil matter that most misclassified employees are too poor, desperate, tired, isolated, and/or uninformed to fight in court.
How do I know if I’m a misclassified worker?
The difference between an independent contractor and an employee is determined only by how you interact with each other. It doesn’t matter what they call you, or how they advertised the job, or what contracts you signed. As the IRS says…
“The substance of the relationship, not the label, governs the worker’s status.”– The Internal Revenue Service, Definition of an Employee
The IRS breaks worker classification down into three categories of questions. Who has behavioral control? Who has financial control? And what is the nature of the relationship between the parties? I’ll give you a rundown of all three, with examples of how these categories manifest for both independent contractors and employees.
Who has behavioral control?
The IRS defines behavioral control as the type and degree of instructions given, evaluation of work, and the provision of training to perform the work.
Independent contractors control most of the circumstances of their work. There may be some guidelines discussed at the outset. But it’s up to the contractor to decide when and where the work gets done, and who does it.
Independent contractors generally…
- Determine their own schedules
- Work from wherever they choose
- Decide what work to do, in what order
- Do not require instruction or training
- Bring their own tools and source their own supplies
- Get the job by putting in a bid
- Have the authority to hire their own assistants
- Can subcontract out some or all of their tasks
- Get feedback based solely on the end result
- Wear whatever they want
Employees, by contrast, have low control over the circumstances of their work. Here, the business has the right to direct and control what work is done, and how. (Interestingly, its doesn’t matter if they actually use that right or not. An experienced employee with a long tenure may not need much supervision—but they’re still an employee.)
- Show up when they’re scheduled
- Work on-site
- Are instructed on what to do and how to do it
- Need training to perform the work
- Get all necessary tools and supplies from the company
- Get the job by applying
- Cannot hire their own assistants
- Cannot subcontract their work to others
- Get ongoing performance reviews or evaluations
- Follow a dress code or wear a uniform
Who has financial control?
The IRS asks five key questions to determine financial control. What’s the level of investment? Is there opportunity for profit or loss? Can the worker make their services available to the market? How are expenses handled? And what’s the method of payment?
Independent contractors retain more control over finances pertaining to their own business. They have a more transactional financial relationship with the businesses that hire them.
Independent contractors usually…
- Invest in tools, equipment, staff, and space required to do a job
- Have the opportunity to make money or lose money, depending on how they approach the job
- Are free to take on as many clients and jobs as they like
- Don’t get their expenses reimbursed
- Invoice clients in flat fees or hourly project rates
Employees have less control over financial outcomes for the businesses that hire them. It’s not customary for them to carry the burden of profitability.
- Bring only themselves to the job, with the company providing the rest
- Don’t have the opportunity to lose money, even if they work inefficiently
- Are discouraged from holding other jobs, especially within the same industry
- Get reimbursed for business expenses
- Get paid via a set salary or hourly rate
What’s the relationship between the parties?
Finally, what’s the nature of the worker’s relationship to the company? This is an easy one for unscrupulous employers to try to cheese, so each of these comes with a big caveat that it is NOT the only determination.
- Permanency is a pretty crucial aspect. Independent contractors are usually hired for a specific period or project. They may also be kept on retainer, if the work is ongoing but unpredictable. But if the business expects the relationship to continue indefinitely, that’s evidence they’re an employee.
- A contract may shed light on whether the worker is an independent contractor or an employee. But its terms matter more than how it describes you. Just because you’ve signed a contract saying you’re an independent contractor does not make you one, in the eyes of the law!
- Employee benefits may be fairly withheld from independent contractors. But again, the IRS clarifies that “the lack of these types of benefits does not necessarily mean the worker is an independent contractor.” Withholding benefits improperly doesn’t strengthen a misclassifying employer’s case, lol.
- The importance of the work can be its own evidence of misclassification. If you provide a service that’s a key activity of the business, the business should probably consider you an employee, even if they pay you like an independent contractor.
How to fight worker misclassification
Of all forms of wage theft, worker misclassification is one of the easiest to combat. You can report and potentially rectify the issue without hiring a lawyer, going to court, organizing with fellow employees, or even working super hard to prove your case.
Step 1: Document everything
Collect any evidence you can to support your correct classification. Good things to save would include…
- Communications (especially from managers) demonstrating the business’s ongoing control of when, where, and what work you do
- Old schedules
- Workplace training materials
- Records of performance reviews/evaluations
- Proof of past reimbursements
- Employee handbooks
- A copy of your original job posting
- Contact information for coworkers in a similar role
Save these as PDFs or images so you don’t need to log in to access them. Store them on an account or device your employer cannot access.
Step 2: Talk to your employer about your misclassification
If you like your job and want to keep it, you could talk to your employer first. Ask them why they think you qualify as an independent contractor. Get their answer in writing, if at all possible.
Maybe the misclassification is an innocent mistake! Maybe they’ll rectify it immediately and issue you a fat check for all the backpay they owe you! And maybe they’ll give you a company pegasus to ride to work as thanks for doing your civic duty!
Look, I know several people who’ve come to their employer with this information. In every single case, the employer became cold, hostile, and dismissive. It was the beginning of the end of that employee’s tenure at the company. And for some, the end came right quick.
… So I personally would skip this step altogether.
Companies that want to rob their employees and cheat labor laws are companies run by bad people with poor judgement. Don’t expect them to negotiate in good faith. It’s much more likely they’ll double-down on bad decisions and retaliate against you. And that’s a much more complicated fight, especially if you haven’t proven you’re an employee yet.
The REAL step 2: Have a backup plan
Before you proceed, I think it’s a good idea to protect yourself. Your employer may retaliate against you, either by firing you or cutting your hours. The angry response you’re sure to elicit may just make work so unpleasant that you want to leave. Those cases may rise to a level where you could pursue a lawsuit. But you shouldn’t act until you’re prepared for instability.
At minimum, you should have a comfortable cushion of emergency funds.
But ideally, you’ll have a new job lined up. Preferably one that won’t steal from you! Initiating the next steps after you’ve already left enables you to seek justice and reparations from a place of greater personal security.
Step 3: File Form SS-8 with the IRS
Although long, Form SS-8 asks straightforward, easy questions about how your employer treats you. It is 100% free to file, and can be done any time. You can find the form here.
Once it’s filed, the IRS will review your answers and contact your employer to get their side of the story. They have a lot of experience with deliberate worker misclassification, and an excellent nose for bullshit, so answer honestly and trust the process.
One catch. The IRS may reveal your identity to your employer. And said employer probably won’t be pleased.
If they do fire you, you can absolutely file to collect unemployment. Plus, any employment lawyer would be thrilled to take your slam-dunk case. But not everyone is up for a lawsuit, even when they’re in the right. (Which I completely understand! I watched too much Law & Order growing up, now I’m over it.) That’s why I’d prefer you avoid this situation by preemptively leaving—unless you want to engage with that smoke.
Step 4: File Form 8919 with the IRS
It will take time, but hopefully the IRS will rule in your favor. There is no appeals process for an SS-8 ruling. So if they say you’re an employee, you are! And always have been.
Now it’s time to recoup some of those lost funds. Start by filing an IRS Form 8919. The IRS will refund the Social Security and Medicare taxes you erroneously paid, and force your (hopefully former) employer to pay their rightful share instead.
Step 5: Report your employer’s worker misclassification to the NLRB
At this point, the IRS may choose to audit the wage thieves. And an audit seems like a pretty solid punishment. But since the IRS has been systematically gutted by the corrupt ruling class, they may not act! It could end right here.
… but should it?
If I were the only victim of a wage theft case, I’d probably be content to get to this point. But if I worked for a company that did this systemically, I’d take it further, and try to seek greater justice for everyone. Past employees may not know they were victimized. They may not have the means to seek restitution. So you’re gonna keep going!
The National Labor Relations Board (NLRB) has regional offices dedicated to processing wide-scale labor violations. They’re the independent federal agency tasked with protecting the rights of employees nationwide.
You’ll initiate the process by—what else?—filling out some forms. But there are a lot more options than the IRS. So I’d start by calling the closest regional office of the NLRB, and asking for guidance. They may recommend filing an additional report with your state’s office of the attorney general as well.
What are some alternatives if I don’t want to cause trouble?
Look… your employer stole from you.
Based on my experience, it’s overwhelmingly likely that they knowingly stole from you, based on a calculated decision that you were too ignorant, meek, or lazy to do anything about it.
And they didn’t steal a small amount. I really want you to understand that. The average misclassified home health aide loses out on $10,000 every year. The average misclassified construction worker loses out on $17,000 a year. These people cannot afford to take that kind of pay cut. Can you?
You are not a troublemaker for asking for the money you’re owed, by law. Going with the flow is not an admirable quality when “the flow” is flushing your money—and the money of many of your fellow workers—down a toilet drain that leads straight to hell.
Yes, it’s true that agencies like the IRS and NLRB are like the Eye of Sauron. Their gaze pierces cloud, shadow, earth, and flesh. But if employers don’t want to draw its gaze, they can start by not breaking the law and stealing your fucking wages.
Involving these organizations is your right as a citizen. If you’re a victim of wage theft, you deserve justice. If they don’t want the hassle of audits and fines and potential jail time, they shouldn’t steal from you. Fuck the puritan work ethic. We need to build a culture that encourages people to respect themselves and their fellow workers too much to accept these abuses.
Greed is bad and has consequences. ¯\_(ツ)_/¯
The future of wage theft
Wage theft is disgustingly rampant in this country. The average American worker loses $3,300 per year to it. And it drives many into sub-minimum wage territory, during a time when the minimum wage is already pathetically insufficient to live upon.
Our systems are not designed to effectively criminalize it, much less proactively prevent it. And it is part of a cacophony of greed that’s making everyday life feel oppressive to many struggling, hardworking people.
Wage theft is a beloved tool of the already rich seeking to further entrench their power. The CEOs who think they deserve to make more money in one day than their lowest paid workers earn in a lifetime? They fucking love worker misclassification. It saves them gobs of money, lets them ignore critical legal protections, and eliminates their obligations to support the personhood of the employee. These people get rock-hard imagining a permanent “gig economy” of desperate workers, willing to undercut each other and accept exploitative behavior to keep food on the table.
This situation is bleak. It’s inhumane and unsustainable. But as long as it’s profitable, nothing will change. They’re gonna keep doing it as long as we let them.
That’s why I want to urge everyone reading this to strongly consider taking the heroic step of reporting worker misclassification. Doing so could refund some of your stolen wages back to you, punish misbehaving employers with fines and legal fees, and set current and future coworkers up for success.
There’s literally no time like the present. At time of writing, unemployment is still incredibly low. That puts us in the best possible position to be successful without financially harming ourselves. In time, unemployment will probably rise, and the IRS will probably continue to get gutted, and the moment for individuals to act will be lost.
Let’s hear from you, readers
Have you ever been misclassified? Did you do anything about it? I’d love to see some success stories in the comments below.
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