Your employment classification affects your rights as a worker. Do you know what impact a misclassification can have on your rights?
If you look at the paycheck of an independent contractor (IC) and an hourly or salaried employee, you’ll notice one primary difference in the two.
Companies don’t take deductions for Social Security, Medicare and taxes when paying you if you’re an IC. They expect you to cover these when you pay your self-employment taxes. On the other hand, employers should take these deductions out of your pay if you’re an employee of the company before issuing you a paycheck.
Why do employers misclassify people?
Many employers may classify a worker as an IC instead of an employee in the hope that it will get them out of figuring out how much deductions they have to take and what to do with the amounts they collect. The downside to this is that you may think that most of your taxes have already been paid, only to find out that they haven’t when you do your taxes.
There’s another way in which your employment misclassification may adversely impact your finances. You may qualify for benefits such as sick and annual leave, workers’ compensation, unemployment and health insurance as an employee. It’s unlikely that you’ll be eligible for the same as an IC, meaning that you’ll have to foot the bill for these yourself.
What to do if you believe an employer has misclassified you
It can be shocking to discover that the company that you’ve been working for has misclassified you. You may be entitled to back wages and other compensation for this indiscretion.
If you believe you have a misclassification case, it’s wise to start compiling your pay stubs and tax records before you talk with your employer. It that doesn’t resolve the situation, it may be wise to seek legal guidance.