Independent Contractor Misclassification

Misclassified as an Independent Contractor in Florida? You May Actually Be an Employee and Owed Unpaid Wages

Many Florida workers are told when they start a job that they are an “independent contractor” rather than an employee. They may be required to sign an independent contractor agreement, receive a Form 1099 instead of a W-2, and be told that they are responsible for their own taxes. But calling a worker an independent contractor does not necessarily make that worker an independent contractor under the law.

This distinction is extremely important. A worker who has been misclassified as an independent contractor may have been denied overtime pay, minimum wages, payroll-tax contributions, workers' compensation protections, and other rights and benefits ordinarily provided to employees.

Most importantly, your employer does not get the final word on whether you are an employee or an independent contractor.

An Independent Contractor Agreement Does Not Necessarily Make You an Independent Contractor

One of the biggest misconceptions concerning independent contractors is that a written contract decides the issue.

It does not.

An employer may present a worker with a document entitled “Independent Contractor Agreement.” The agreement may expressly state that the worker is not an employee. The worker may read the agreement, sign it, and knowingly agree to be treated as an independent contractor.

That does not necessarily make the worker an independent contractor as a matter of law.
Even where both parties agree that the worker will be classified as an independent contractor, a court or government agency can determine that the worker was legally an employee.

The reason is straightforward: employment status generally depends upon the economic and practical realities of the working relationship, not merely the terminology chosen by the employer or worker.
In a wage-and-hour lawsuit, a court looks beyond labels and examines what actually happened.

If you were required to report to work at a particular time, worked for the same business on an ongoing basis, performed work central to that business, were supervised by the business, lacked a meaningful opportunity for entrepreneurial profit or loss, and depended upon that business for your livelihood, calling you an “independent contractor” does not necessarily change the true nature of the relationship.

Receiving a 1099 Does Not Decide the Issue Either

Another common misconception is:

“I received a 1099, so I must be an independent contractor.”

Not necessarily.

A Form 1099 is a tax-reporting document. It does not conclusively determine your legal employment status.

Likewise, being paid without payroll deductions, being required to submit invoices, being paid through your own LLC, or having an independent contractor agreement does not automatically resolve whether you are legally an employee.

Courts look at the substance of the relationship.

An employer generally cannot avoid wage-and-hour obligations simply by changing the paperwork.

How Is Independent Contractor Status Determined?

There is no single test that controls worker classification for every federal and Florida law. Different statutes can apply different standards.

For federal tax purposes, the Internal Revenue Service provides detailed guidance for determining whether a worker is an employee or independent contractor. The IRS generally organizes the relevant considerations into three broad categories:

Behavioral Control: Does the business have the right to control what the worker does and how the worker performs the job?

Financial Control: Who controls the business and financial aspects of the worker's job? Does the worker make a significant investment, incur genuine business expenses, offer services to the market, and have a meaningful opportunity for profit or loss?

Type of Relationship: How do the parties describe and structure their relationship? Is the relationship permanent or indefinite? Are employee-type benefits provided? Are the worker's services a key aspect of the business?

The IRS also provides Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, which contains a detailed series of questions concerning the working relationship. A worker or business may submit Form SS-8 to request an IRS determination concerning federal tax classification.

These IRS materials provide a useful framework for understanding how worker classification is analyzed. However, the IRS tax test is not necessarily the same test a court applies under the Fair Labor Standards Act (“FLSA”) or another employment statute.

Independent Contractors and the FLSA

When a worker brings a claim for unpaid minimum wages or overtime under the Fair Labor Standards Act, the analysis generally focuses on the economic realities of the relationship.

The ultimate question is generally whether the worker is truly operating an independent business or is instead economically dependent upon the employer for work.

Depending upon the applicable law and circumstances, courts may examine factors such as:

The employer's control over the worker;
The worker's opportunity for profit or loss;
Investments made by the worker and employer;
Whether the work requires specialized skill and business initiative;
The permanence or duration of the working relationship; and
Whether the work performed is an integral part of the employer's business.

No single factor necessarily decides the case. The entire relationship must be examined.

For example, someone who owns an independent plumbing company, advertises to the public, purchases equipment, employs workers, works for numerous customers, negotiates prices, decides which jobs to accept, and can generate a profit or suffer a loss based upon business decisions looks considerably different from someone who reports to the same workplace every morning, works the hours assigned by a supervisor, performs the company's regular business, and depends upon that company for his or her income.

The second worker may be an employee regardless of what the employer calls the relationship.

Many Workers Called “Independent Contractors” Are Actually Employees

True independent contractors certainly exist. Consultants, tradespeople, professionals and business owners can operate legitimate independent businesses.

But employers sometimes misuse the independent contractor classification.

For many individual workers performing regular labor for a business, the facts may show that the person is an employee who has simply been labeled a 1099 independent contractor.

This can be financially advantageous to the employer because shifting someone from employee status to independent contractor status may shift significant costs and obligations onto the worker.

That is precisely why the legal classification matters.

Misclassification Can Cost a Worker Money in Taxes

One major consequence of independent contractor misclassification involves Social Security and Medicare taxes.

Employees generally split Social Security and Medicare payroll taxes with their employers. Independent contractors generally pay self-employment tax, which effectively requires them to bear both the employee and employer portions, subject to the applicable tax rules.

As a result, a worker improperly classified as an independent contractor may end up bearing payroll-tax costs that would otherwise have been partially borne by the employer.

Independent contractors may also have to make estimated tax payments and handle tax obligations that an employer would ordinarily address through payroll withholding.

The precise income-tax consequences depend upon the worker's circumstances, deductions, expenses, and tax treatment, so it is not accurate to say that every independent contractor necessarily pays more federal income tax. However, independent contractors generally bear a larger direct Social Security and Medicare/self-employment tax burden because there is no employer paying its share.

Independent Contractors May Lose Workers' Compensation Protection

Classification can also have serious consequences when someone is injured at work.

Employees are generally covered by applicable workers' compensation protections when their employer is required to maintain coverage. Genuine independent contractors may fall outside those protections, subject to the particular industry and Florida workers' compensation laws.

Misclassification therefore becomes much more than a payroll issue.

A worker may believe that he or she has ordinary workplace protections only to discover after an injury that the company claims:

“You weren't our employee. You were an independent contractor.”

Again, the company's label does not necessarily resolve the legal question.

Misclassification Can Also Lead to Unpaid Overtime

For wage-and-hour purposes, one of the biggest consequences of independent contractor misclassification is unpaid overtime.

Employees covered by the FLSA are generally entitled to overtime compensation at one and one-half times their regular rate of pay for hours worked over 40 in a workweek, unless a specific exemption applies.

An employer may classify a worker as an independent contractor and simply pay a flat daily rate, weekly amount, percentage, commission, piece rate, or hourly rate without overtime.

If the worker was actually an employee, that arrangement may violate federal wage law.

Consider someone working 55 hours every week while being paid as a “1099 contractor.” If that person was legally an employee and was not otherwise exempt from overtime, the employer may owe substantial unpaid overtime compensation.

Depending upon the circumstances, additional damages and attorneys' fees may also be recoverable.

You should consider having your classification reviewed if several of these circumstances describe your work:

You work primarily or exclusively for one company.
The company determines your work schedule.
A manager or supervisor tells you how to perform your work.
You perform essentially the same work as employees receiving W-2s.
You have worked continuously for the company for months or years.
You do not advertise your services to the general public.
You do not negotiate individual jobs or contracts.
You do not operate a genuinely independent business.
You have little meaningful opportunity to increase profits through business decisions.
You perform work that is central to the company's regular business.
You are required to personally perform the work.
You can be terminated by the company.
You receive a 1099 but function day-to-day like an ordinary employee.

None of these facts alone necessarily determines your status. Worker classification is highly fact-specific.

The Employer's Label Is Not the Final Answer

The central point is worth repeating:

Your employer cannot necessarily transform you from an employee into an independent contractor simply by putting the words “Independent Contractor” at the top of a contract.

Nor does your signature necessarily resolve the issue.

Nor does receiving a 1099.

Nor does agreeing to handle your own taxes.

Nor does forming an LLC necessarily determine your rights under wage-and-hour law.

The law looks beyond labels to determine the true nature of the working relationship.

Were You Misclassified as an Independent Contractor in Florida?

If you worked long hours, received a 1099, were told you were an independent contractor, and were not paid overtime, you may want to have your employment status reviewed by a Florida wage-and-hour attorney.

Independent contractor classification is highly fact-intensive. Small differences in control, investment, economic dependence, managerial responsibility, skill, permanence, and the nature of the business can affect the analysis.

If you believe you were misclassified as an independent contractor in Florida, speak with an employment attorney about the actual circumstances of your work—not merely what your contract or 1099 says.

You may have been an employee under the law and may be entitled to recover unpaid minimum wages, unpaid overtime compensation, additional damages, and attorneys' fees for the work you already performed.

Common Warning Signs of Independent Contractor Misclassification

Contact

I'm always looking for new and exciting opportunities. Let's connect.

lowell@kuvin.law

305-358-6800