Are you a self-employed worker or an employee? Many employers try to classify workers as independent contractors instead of employees to avoid paying taxes and providing benefits. The IRS has rules about classifying workers correctly, but because there is no checklist that works for every scenario, it can be a complex situation. However, it is important to your finances to have the correct classification.
Rules that determine your classification
The IRS looks at three categories of evidence when deciding how you should be classified:
- How much control does the company have over your behavior on the job?
- How much of the business aspects of your job are controlled by the employer? How are you paid and reimbursed? Who provides your tools and supplies?
- What type of relationship do you have? Is there a contract? Are you a key element in the business?
A contract alone does not determine your classification, but it is certainly one aspect of your business relationship. Generally, the more control an employer has over your work environment, the less of an independent contractor you are. You have to look at the entire relationship when determining your classification.
Steps to take if you think you are misclassified
If you believe you should be classified as an employee, but your employer classifies you as a freelancer or contractor, you can discuss this with human resources. Try to find out why the company classifies you as they do. Many times, you can work it out with your employer just by asking. If you are scared that you might upset the employer, consider speaking to an employment attorney about your rights before you make a move.
If speaking to your employer does not work, the next step might be to ask the IRS for a determination. Form SS-8 can be filed for free with the IRS. Either the business or you can file this form, providing information about your circumstances. It does take about six months to receive a determination. Your employer might learn that you filed the form if the business needs to provide more information.
You might want to talk to an attorney experienced in employment law to find out the best way to proceed. Your employment classification determines how much you pay to the IRS. If you are responsible for your own Medicare and Social Security taxes, then you need to pay that. If your employer should be covering half of your taxes, it is fair that they do so. Legal issues of employment are not always cut and dried, so make sure you know your rights.