What can I do if I was misclassified as independent contractor?
California law allows workers who are misclassified as independent contracts (but should have been treated as W2 employees) to file a wage and hour lawsuit.
Can an independent contractor sue for misclassification?
Labor Code Section 226.8 dictates that the misclassification of employees in California as independent contractors is unlawful. Employers face penalties ranging from $5,000 to $15,000 for each violation of the statute. If employees incurred expenses as independent contractors, they also may be entitled reimbursement.
How do I know if I’ve been misclassified as an independent contractor?
Contractors typically use their own work equipment such as laptops and cell phones. If the company issues their own computer or cell phone or if you have a company email address or business card, those may all be telltale signs that you are being misclassified as a contractor.
What is the penalty for classifying an employee as an independent contractor?
Under Labor Code section 226.8, which prohibits the willful misclassification of individuals as independent contractors, there are civil penalties of between $5,000 and $25,000 per violation. Willful misclassification is defined as voluntarily and knowingly misclassifying an employee as an independent contractor.
What happens if an employee is misclassified?
When an employee is misclassified, federal and local government lose out on tax and payroll revenue. Companies can be held responsible for paying back-taxes and interest on employee’s wages as well as FICA taxes that weren’t withheld originally. Failure to make these payments can result in additional fines.
Can I sue for employee misclassification?
Many employers misclassify workers to avoid giving them California overtime pay and minimum wage. But their workers can file a lawsuit for misclassification and can recover penalties as high as $25,000 per worker.
How do I report an employee misclassification?
If employee misclassification is causing tax fraud, workers can anonymously report their employers to the IRS by filing Form 3949-A. If workers would like the IRS to make a determination about their worker status, they can file the non-anonymous Form SS-8.
What classifies an employee as 1099?
1099 employees are self-employed independent contractors. They receive pay in accord with the terms of their contract and get a 1099 form to report income on their tax return. The employer withholds income taxes from the employee’s paycheck and has a significant degree of control over the employee’s work.
What happens if an employee is misclassified as exempt?
Misclassifying employees as exempt from overtime can result in back overtime, fines, and damages. Before classifying employees as exempt, make sure they satisfy applicable federal and state tests. When in doubt, it is best to err on the side of caution and classify employees as non-exempt.
How do I report employee misclassification?
What is the tax rate for an independent contractor?
Federal income tax rates for independent contractors start at 10% and increase gradually to 37% based on how much taxable income the independent contractor earns annually.
What are the requirements to become an independent contractor?
These requirements, which generally apply to independent contractors, sole proprietors, and members of partnerships, are that: You must file an annual income tax return (Form 1040). This requirement applies if you earned $400 or more through self-employment. You must pay estimated taxes on a quarterly basis.
What tax forms do I need when hiring independent contractors?
Form W-9 must be signed by all independent contractors when they begin work for your business. This form is required to provide a tax ID number (social security number, employer ID (EIN), or other. The W-9 form serves the same purpose as a W-4 form for newly-hired employees.
How do independent contractors pay taxes?
Independent contractors pay federal and state tax on their net earnings, which is the income from a trade or business minus any related business deductions. Estimated taxes on this income are typically paid in advance four times a year.