“Independent Contractor” My Ass: How to Stop Wage Theft Through Worker Misclassification

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…

If you say she's not a babe, that's some worker misclassification right there.

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.

The three prong test to establish worker misclassification.

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.)

Employees generally…

  • 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.

Employees usually…

  • 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
  • Contracts
  • 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!

Maybe you work for one of the GOOD companies that systemically steals from their employees!

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.

Companies when you file an SS-8 alleging worker misclassification lmaoooooo.

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?

This is wage theft. Fuck politeness.

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.

The IRS to companies misclassifying workers: "I SEE YOU."

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.

Listen to President Bill Pullman. End wage theft by worker misclassification NOW.

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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11 thoughts to ““Independent Contractor” My Ass: How to Stop Wage Theft Through Worker Misclassification”

  1. I appreciate this article (and everyone other one you write!) However, after reading through it a couple times, I’m still unclear as to how someone can accurately assess if they are currently (or were recently) being mis-classified, or how to spot if someone else is. Is it a matter of looking at the bullets you outlined for behavioral and financial control to determine where they fall, and if that corresponds with the classification? Thank you!

    1. Thanks for reading! Let me try elaborating…

      So the IRS makes a determination based on the TOTALITY of circumstances around three questions: who has behavioral control? Who has financial control? And what is the nature of the relationship between the parties? They’re described with examples under the section titled “How do I know if I’m a misclassified worker?”

      Taking a look at the SS-8 form might help you visualize this. In that form, they ask 57 questions. (“Did you train this worker to do this job?” “What locations can this worker work from?” “What meetings are they required to attend?” “How do you pay them?”) Let’s say 14 of your answers are more typical of an independent contractor, and 43 are more typical of an employee. The IRS would likely rule you’re an employee, because more of your answers are similar to an employee.

      I read a lot of details that indicated “employee” is viewed as the default answer. Basically, if the business wants the benefits of calling you a contractor, they need to prove it with a strong, clear case. Some answers are almost certainly weighted—the last point under relationships about the importance of your work to the core business provided is definitely a strong one.

      But as far as I can tell, it’s not a yes/no/point system kind of decision. It seems to be a determination made by the human judgement of an IRS officer, based on the totality of both parties’ answers to that huge range of questions, as well as the strength of the evidence both parties provide.

      Hope that helps!

  2. My sister worked as a contractor in high school for a famous popcorn company in a retail position. Definitely wage theft. I don’t know how they were able to get away with it. Except that low wage workers have no real protections even when they are protected under law.

    1. Exactly–it’s that 16 year olds don’t know any better. They have little work experience, know nothing about labor law, and have been conditioned to do as they’re told. They know they’re breaking the law, and they don’t care. Infuriating. If it wasn’t too long ago, tell her to file a claim.

      Their popcorn’s probably shit, too. You need purity and love to make good popcorn!

  3. Perfect timing! I’ve been dealing with this for about 6 months, pushing HR to reclassify me, and nothing’s happened. The tricky thing is that I work remotely, and the company’s argument is that they’re not incorporated in my state, so they can’t hire me unless they choose to incorporate. Does their argument hold water?

    1. Great question. Their argument, for me (a non-lawyer or financial professional) does NOT hold water.

      It’s extremely likely that they reason they aren’t incorporated in your state is because being incorporated in some state gives them great tax breaks. The price they must pay for those great tax breaks is to either limit themselves to employees in that state, or to endure the mild administrative pain of hiring and properly compensating out-of-state employees. There is no third option: to deliberately misclassify employees as independent contractors. By doing so, they’re both breaking the law AND shifting their fair tax burden onto YOU.

      Fundamentally, this issue isn’t yours to solve on their behalf. Your only prerogative is to make sure you’re being properly classified. Personally, unless you’d be in danger without this job, I’d blow their shit up with an SS-8. You’ve already given them 6 months of grace too figure their shit out, and HR hasn’t fixed it, because they have no intention of fixing it. The IRS will provide them with all the appropriate motivation they cannot seem to find on their own.

    2. As a tax professional who occasionally deals with this exact issue, they are probably not currently filing corporate income tax returns in your state, and you being a employee worker in the state would force them to do so (tax laws are pretty clear about having a taxable presence in a state if you have an employee in the state). So while their motivation might not be to screw you over on the worker classification side, the end result is the same.

      Re: Kitty’s comment on the IRS – you might make more waves on the state taxation front. However, this will probably go scorched earth and I am not sure how much longer you would be employed by your company if you went this route.

  4. I used to work for an awful marketing agency under this guy named, R**, which he had since sold the business to someone else. He took advantage of all his “independent contractors” who were basically all employees to save himself money, taxes, and paying us medical/dental benefits. Of course, now looking back, I and I think many others didn’t know any better. We wanted the freedom to work remotely and liked the idea of “working for ourselves” but we were all delusional. We were basically trapped to work 40hrs/week with him. He told us how he wanted us to work, when meetings were ran, he determined how much we were getting paid, etc, etc. He called all the shots basically. I don’t care what you say, if someone wants you to work full-time hours but doesn’t want to give you the FT employee title, they’re exploiting you. They are taking up all of your working hours for the week. 40hrs for any normal individual is more than enough. Why lock yourself in a technically “full-time job” without the “full-time” benefits? He barely paid us enough. He didn’t want to pay up while he and his family were living it up, buying luxury designer, and a big house, while we were barely making ends meet. Unfair and gross if you ask me. That to add, he considered himself religious and thought he was holier than thou. There was technically no other benefit to this job than just cheating myself out of regular employee safety, security, benefits, and wages. Many coworkers were burnt out and in emotional distress. It wasn’t just me he took advantage of, but many, many others. Hope this brings awareness to others who may be in the same boat.

  5. I ended up working (very) part-time for a nonprofit. I was most definitely an employee misclassified as a contractor, but the low pay and low amount of hours (I’m talking like 6 hours/week, at the absolute max) made it seem moot. Lowering my pay so they could pay taxes on me would net me about the same income, the income wasn’t enough to bother with a 401(k), and I didn’t work enough hours to qualify for pretty much all benefits I’d need except PTO, which I could already get unpaid anytime I wanted it. And yet, it burned to sit and let it be. I was an employee, dammit, and I decided then to start getting out or else it would eat me alive just knowing.

  6. Hello!
    Very good read, thank you for the breakdown.
    So, I was originally hired as a W-2 employee for a family owned medical company (father CEO, daughter HR, etc.) I was one of the first W2 employees hired in their sales devision (previously, everyone had been classified as 1099). I will point out, that all 1099 employees were expected to perform as employees, take meetings, adhere to all internal asks – I have told several of them that they are not classified correctly.
    As of January 8th, 2024 I was told that the CEO decided that he no longer wanted his sales team on salary, but wanted me (everyone) on as 1099. The other reps had been told a week prior. We have been told that we have been given our final wages, and will only be paid commission going forward. HOWEVER, we have YET to receive a 1099 contract. Does this mean our W2 is still in play (we were never given termination)? I also think they could get in trouble with the IRS and FEDs due to refusal to pay us our wages and misclassification of employment.
    Would love your thoughts – thank you!!

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