Understanding whether you are classified as an employee or an independent contractor is important for your rights at work. This classification affects your wages, benefits, job protections, and tax responsibilities. In some cases, companies may misclassify workers, which can have serious financial and legal consequences.
A business may treat you as an independent contractor to reduce its obligations, but that does not necessarily mean the classification is correct. Even if you receive a 1099 form, sign a contractor agreement or are told you are a contractor, you could still legally be considered an employee based on how your work is structured.
How do you know if you are an independent contractor?
The federal government looks at the nature of your working relationship when determining if you are an independent contractor or an employee. These factors are based on how much control the business has over your work and whether you are truly operating as your own business.
- Level of control: If the company controls your schedule, duties, or work process, you are more likely to be an employee. Independent contractors typically decide how and when to complete the work.
- Type of relationship: Long-term, ongoing relationships often suggest employment. Independent contractors usually work on a project-by-project basis without expectation of continued work.
- Financial arrangement: If the company supplies tools, pays business expenses, or controls how you are paid, that leans toward employee status. Contractors usually invest in their own equipment and set their own fees.
- Work integration: If the work you do is a key part of the company’s daily business, it may suggest an employment relationship. Independent contractors are often hired for services that are not central to the business.
- Opportunity for profit or loss: Contractors face the possibility of profit or loss depending on how they manage their work. Employees are typically paid a regular wage or salary without that risk.
Misclassification can affect your pay, benefits and rights. Obtaining legal guidance can be helpful if you believe your job status has been incorrectly classified.