Employee misclassification is one of the most serious problems faced by workers, employers, and the economy as a whole. In fact, employee misclassification is such a huge problem that California legislature passed laws designed specifically to outlaw the practice. Under this legislation, employers face penalties of up to $25,000 for every violation.
Misclassification refers to the practice of purposely classifying workers as contractors instead of rightful employees. This is fairly popular among employers, as it allows them to avoid paying overtime and minimum wages, health benefits, a range of taxes, and unemployment and workers’ compensation insurance.
Yet in the current “share economy,” a number of companies – Uber most notable among them – have begun to face backlash from workers who demand full employee rights.
How Misclassification Hurts Workers
Misclassification hurts workers significantly. Contractors are, simply put, denied access to protections and benefits. Some examples of these protections and benefits include unemployment insurance, minimum wage, family and medical leave, safe workplaces, and overtime compensation.
Employee misclassification not only hurts the workers, but it also leads to substantial losses to the state government and federal government due to lower tax revenues. It leads to great losses in terms of state workers’ compensation and unemployment insurance funds. This practice hurts taxpayers and the economy overall.
The Most Common Myths
Many myths and misconceptions surround the topic. Unfortunately, the atmospheric misinformation can make it difficult for workers to fight for appropriate classification and compensation. Some of the most common employee misclassification myths include:
- Independent contractors are not eligible for unemployment insurance. While it is true that some independent contractors don’t qualify for UI, being an independent contractor does not automatically disqualify you from eligibility.
- Workers who receive a 1099 are independent contractors. How the nature of your work falls within the law’s definition of employment is the only factor that determines whether you are an independent contractor. If you receive a 1099 tax form, it is because your employer classifies you as an independent contractor. However, there is no guarantee that you are properly classified.
- Workers who sign independent contractor agreements are independent contractors. Simply because you signed an independent contractor agreement does not necessarily mean that you are an independent contractor. It is possible that you are improperly classified and signing an agreement does not limit your ability to seek proper classification.
In spite of the new legislation enacted by California legislature, employee misclassification is still a huge problem. If you believe that you are improperly classified as an independent contractor, it is imperative to consult with an attorney who can help protect your rights – and your wages.