what to do when your employer illegally treats you as a contractor

A reader writes:

My question relates to being a 1099 contractor for a consulting firm. I was under the impression that I would be working with the rights and privileges of an independent contractor. I was hired to be a software instructor however the organization is not yet ready to train our clients, therefore I will be working in software development/testing (not disclosed to me at time of interview, and something totally new to me.)

When working as an instructor I would work typical classroom hours, which I agreed to. Since I am not yet working in the classroom and am in the office doing development type work, I have been placed under a new supervisor and been told my hours will be longer than expected, possibly include Saturdays, and starting soon will be shifted to a very early or late schedule (7-3:30 or 3:30-midnight — without preference). The work is tedious and I am staring at a screen for hours on end — much different than being an instructor!

As an independent contractor, can they require this of me? If I have to do this development and testing, can I request to work from home? I am perturbed that my Saturdays could be gone in addition to my daily routine! In looking at the IRS website, I was under the impression if they control when/where/how I work, I am no longer a contractor but an employee.

First, some background: As you clearly know, the IRS lays out rules for when someone can be paid as a 1099 contractor and when they must be paid as an employee (which would mean the employer withholds income taxes, withholds and pays Social Security and Medicare taxes, and pays unemployment taxes).What’s tricky, though, is that it’s not a precise formula. The IRS looks at three factors:
1. Behavioral facts — Does the employer control where and how the worker does her job?
2. Financial facts — Are the business aspects of the worker’s job (such as how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.) controlled by the employer?
3. Type of relationship — Are there written contracts or employee-type benefits?

While this might seem reasonably straightforward, it’s important to note that the IRS says, “Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no ‘magic’ or set number of factors that’“makes’ the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another. The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.”

In other words, it’s not 100% clear-cut. That said — and with the caveat that I’m not a lawyer — what you’ve described certainly sounds like an employee relationship, not a contractor relationship, particularly in regard to the company controlling the hours and location where you work.

So, if that’s the case, what can you do? I’d start by talking to them. You don’t want to come at this in an aggressive “you’re breaking the law” way right out of the gate — because although it’s certainly your prerogative to do that if you want, it’s unlikely to get you a great outcome. People rarely respond well to that type of thing, and you presumably want to handle this in a way that preserves the relationship.

I’d say something like this: “I want to make sure we’re complying with the federal regulations on independent contractors. I think the current set-up is going to be problematic in that regard, especially with having me work set hours from your office, which is a key part of the test the IRS uses. One solution could be for me to work from home.”

If their answer makes it clear that they have no clue what the law on this is, then follow up with, “I want to be as helpful as I can, but I don’t want us to get into legal trouble by misclassifying the position. The IRS says that 1099 contractors are subject to certain rules, such as the company not controlling where the worker does the work. Otherwise, the company could end up with financial penalties.”

From there, a couple of things could happen:

1. They could take a look at the law and adjust how they’re handling this. This could result in you being able to work from home, etc., but it could also result in you not having any work until the classroom part of your job begins (if they’re not comfortable with the work being done from home, for instance). So make sure that you’re prepared for that possibility.

2. They could indicate that they don’t care about what the law says and change nothing. If that happens, you’ll have to decide whether you want to continue to pursue the issue or not. If you do, you could file a claim with the IRS or with your state labor agency … although be aware, of course, that if you do that, the relationship with the company isn’t likely to stay a particularly good one. It’s illegal for them to retaliate against you for filing such a claim, but the reality is that it’s generally very difficult to stay on good terms with a company after filing a legal claim against them, and retaliation can be subtle and hard to prove (and expensive to prove, as well). You might end up deciding that the benefits you’d get from filing a claim are outweighed by other factors. I’m not pre-judging that for you — just telling you to look at all this stuff before deciding how to proceed.

But start with the assumption that they just don’t realize there’s a problem (which is incredibly common), and see if a non-adversarial conversation can clear it up.

This entry was posted in HR, Leadership. Bookmark the permalink.

Comments are closed.