Are You Being Misclassified as an Independent Contractor? Here’s Why It Matters
Imagine working hard every single day, only to realize that you're missing out on benefits and protections that could safeguard your future. That’s what the risk of employee misclassification looks like—and it could be happening to you.
If you’ve been told you’re an independent contractor but you’re unsure what that really means, it’s crucial to understand the implications. Misclassification isn’t just a label; it can affect your paycheck, legal rights, and the benefits you’re entitled to.
At Chris Sanders Law PLLC in Louisville, Kentucky, I’ve seen firsthand how damaging employment misclassification can be for people in Kentucky. Here’s a closer look at the risks and how to protect yourself.
What Is Employee Misclassification
Employee misclassification happens when you’re labeled as an independent contractor instead of an employee. At first glance, it might not seem like a big deal. Independent contractors are often promised flexibility and autonomy. However, the label also means you may not qualify for the same perks, protections, and financial security as full-time employees.
The distinction between employees and independent contractors often comes down to control. Companies have limited say over how independent contractors do their work, while employees typically follow a set schedule, use company tools, and work under direct supervision.
Unfortunately, some businesses misclassify workers—intentionally or accidentally—to cut costs, and it is the employees who end up paying the price.
What You Lose When You’re Misclassified
Being misclassified comes with real consequences that can hurt your wallet, your career, and your access to essential protections. Some of the negative impacts of misclassification include the following.
No Access to Benefits
Employees enjoy benefits such as retirement plans, health insurance, and paid time off. If you’re misclassified as an independent contractor, you’re not eligible for these perks. This means you’ll have to pay out-of-pocket for things like medical expenses or save for retirement completely on your own.
For example, if you get sick and need time to recover, an employee might rely on their company-sponsored health plan and paid sick leave to stay afloat financially. As an independent contractor, you’re likely on your own to cover both lost wages and medical bills.
No Workplace Protections
Employees are protected under many laws that independent contractors aren’t, including, but not limited to, the following protections:
Minimum wage and overtime laws: Employees must be paid at least the federal minimum wage and are entitled to overtime pay for extra hours worked. Misclassified workers may miss out on these legal rights.
Anti-discrimination protections: If you face discrimination or harassment at work, being classified as an employee ensures you have access to legal recourse.
Unemployment benefits: Employees who lose their jobs unexpectedly can qualify for unemployment benefits. Contractors are not eligible, even if the misclassification caused job instability.
Higher Tax Burdens
Misclassified workers often face a heavier tax burden. As an independent contractor, you’re responsible for the entire self-employment tax (15.3% in 2023, covering Social Security and Medicare). Employees, however, have these contributions partially covered by their employer. This can leave independent contractors with significantly lower take-home pay.
Job Instability
Independent contractors typically don’t receive the same job security as employees. You could be dropped from a project or lose work with little to no notice. Employees, however, often have formal processes in place for things like layoffs and terminations, providing some level of protection or severance.
Limited Career Growth Opportunities
If you’re classified as a contractor, you might find it harder to access the same training, mentorship, or promotions as employees. Employers often invest in their employees’ long-term growth, strengthening their skills and prospects. For contractors, the relationship is often seen as transactional, limiting professional development opportunities.
How Misclassification Happens
Misclassification can happen in several ways. If you suspect your employment may be misclassified, some tell-tale signs you should look out for include the following.
Control over your work: If you’re told what to do, when to do it, and how to do it, you might be an employee even if you’re called an independent contractor.
Employer-provided tools or materials: If the company provides the tools, software, or workspace you need to perform your job, it could indicate an employment relationship.
Set hours or long-term work: Independent contractors typically work for multiple clients. If you’re working exclusively for one company or following a company-set schedule, you might be misclassified.
Some companies misclassify employees to avoid the costs of providing benefits, paying payroll taxes, or following labor laws. Others may simply misunderstand the legal definitions and classifications.
What You Can Do to Protect Yourself
If you think you’ve been misclassified, it’s important to act quickly to protect your rights. Here are some steps you can take to address the issue and fight for fair treatment.
Understand the legal definitions: The exact difference between employees and contractors can vary by state, but certain rules (like the IRS’s control test) can offer the guidance you need. Familiarize yourself with the criteria that determine whether you’re a contractor or an employee.
Review your work arrangement: Ask yourself questions like “Who controls how you do your work?”, “Do you report to a supervisor daily?”, or “Are you using your own equipment, or is it provided by the company?”. If the company exerts notable control over your work, you might be misclassified.
Speak up: If you believe you’ve been misclassified, consider discussing the issue with your employer. They may not realize an error has been made.
File a complaint: You can file a complaint with the Department of Labor (Wage and Hour Division) or your state’s labor department. You may also report misclassification to the IRS if you’ve experienced tax-related issues.
Seek legal advice: If you’re unsure about your classification or how to take action, consider consulting with a labor attorney. They can assess your situation and guide you on the next steps.
Misclassification Is More Than a Label—It’s Your Rights at Stake
When you’re correctly classified as an employee, you gain access to protections that can greatly impact your quality of life, from health insurance to legal safeguards to fair wages. If you suspect you’ve been mislabeled as an independent contractor, don’t wait. Every day without addressing the issue is a day you miss out on benefits and protections you’ve rightfully earned.
Contact an Experienced Employment Lawyer
Understanding your classification is not just about knowing where you stand today; it’s about securing a better future. Protecting your rights starts with knowing what they are, so use the resources available and take control of your career.
At Chris Sanders Law PLLC, I help people with business issues. I have experience guiding people through cases of employee misclassification, and I can guide you through the steps for remediation. Contact me for assistance today. My firm serves people in the greater Kentucky area.