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How the IRS views employees vs. independent contractors

On Behalf of | Jun 16, 2021 | Employee Classification

Flexibility is one of the primary perks of being an independent contractor in California. You likely work on a project basis and determine your own hours. However, if the company imposes job-related control that removes the flexibility, reclassification may be necessary. This can financially impact both you and the employer.

Employees misclassified as independent contractors pay more in taxes and lose workplace protections. If you work more than a standard workweek, you might miss out on earned overtime pay. You may also be ineligible for disability compensation or unemployment benefits.

Employees

According to the IRS, three categories of control provide evidence about whether your position meets the requirements of an employee. They include the following:

  • The company controls the financial aspects of your job, such as payments, expense reimbursement and supplies.
  • The company dictates how and when you complete job-related tasks.
  • The company provides benefits, such as paid personal days and insurance.

If the organization controls the relationship, you may meet the description of an employee.

Contractors

Your status may become blurred depending on the tasks required of your position. As a contractor, you and a company representative likely signed a contract detailing the scope of work. You dictate how the project progresses and treat the company as a client. Independent contractor status may be appropriate if the project is under your control.

If the company classifies you as an independent contractor but holds you to employee requirements, it may have misclassified you. It’s critical that you understand the classification and wage and hour guidelines that determine whether you meet the description of an employee or contractor before taking action.