Independent Contractors Beware: Your Employer May Be Taking Advantage of You

With jobs scarce and money tight these days, the prospect of working as an "Independent contractor," and getting a full paycheck with no big bites taken out for taxes and other obligatory expenses might seem like the perfect setup, and it could well be. But it could also mean that your boss is taking advantage of you and the government.

Here's how it works

You agree with a company or person to complete a certain project by a certain deadline, and you agree on the amount you'll be paid to do it. The employer pays you upon completion or in increments, whatever you've decided. Sounds simple enough, whether it involves cleaning an office, constructing a building or writing a magazine article. If you're paying someone regularly to mow your lawn, clean your house or walk your dog, they are probably not your employees, they are independent contractors, and you pay them the fee you've agreed upon when they invoice you.

But there are more and more employers these days who take advantage of this situation. If they list you as an independent contractor rather than as an employee, they avoid paying Social Security, unemployment insurance, Medicare, and other costs like workers' compensation insurance for the employee, and bookkeeper fees to keep track of it all. It's estimated that employers average paying about $9 extra per hour for actual employees. When they pay you as an independent contractor, they avoid all that.

Which is best?

That might be just fine with you if you you're good at figuring out and paying your own taxes, and if you don't care about health, unemployment and disability insurance or paid vacation. Many people would rather handle those things on their own. But you may not realize that if you're working under certain circumstances, your boss is legally required to pay the government all those extras, and could be severely fined for avoiding them.

For example, one prominent businesswoman who owned a phone sales company made it a policy to pay her entire staff as independent contractors. Her personal assistant, her business manager, her receptionist and her sales team were required to report to the office every day for specific hours, work on her phones using her computers, and dress by certain standards. At the end of each week, she would write them all fat, deduction-free checks. Bonuses came in the form of lunches and dinners out with the boss, designer handbags and spa certificates.

It worked just fine for most until someone got sick -- and discovered that not only did they lack health insurance, they weren't guaranteed sick leave, and were easily and effortlessly replaced. They had no unemployment benefits when they were laid off when business was slow, and when April rolled around, they were handed a 1099 disclosing all of their earnings, and they were stunned by their tax burdens, both to the IRS and to the state. They could also be fired at their employer's whim, with no recourse from the EEOC, and no one to complain to when she became abusive.

How to know the difference

How do you know if you are actually an employee or an independent contractor? If you can answer yes to several of the following questions, you are probably not working as an independent contractor but as an employee, and you should be paid accordingly:

  • Does your employer control every aspect of your job, leaving you absolutely no independence or leeway in how it's completed?

  • Does your employer tell you when and where to work, specifying certain hours and location, owned or leased by the employer?

  • Does your employer specify what you should wear and how you should look?

  • Does your employer have a say in whom you hire to assist you?

  • Does your employer tell you exactly where to get the materials needed to do the job?

  • Is extensive, paid training involved?

  • Does your employer require exclusivity? Are you prohibited from doing work for others and advertising your services?

  • Are you being paid an hourly, weekly or monthly wage? Are you being paid a commission? Independent contractors are usually paid a flat fee, although in some professions, such as legal services, independent contractors can be paid hourly wages.
  • Were you hired with the expectation that the relationship will continue indefinitely, rather than for a specific project or period?

  • Are your services a key aspect of the business? For example, a receptionist must perform specific duties during certain hours, according to business policies, and does not have much freedom to decide how and when the job will be done.

If you still aren't sure if you're an independent contractor or an employee, try downloading Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding (PDF). Either the worker or the employer can fill out and send in the form, and the IRS will review the situation and tell you its determination on the matter.

It's probably best to fill this form out as an employee and let the IRS do any dirty work that needs to be done, however. If you suspect your boss is trying to pull one over on the government, he or she is probably not the type of employer that would say, "Why thank you for bringing these violations to my attention!" But then again, if you suspect your boss is sincerely unaware and willing and eager to comply, by all means, discuss it with him or her.

Next: 10 Part-Time Jobs to Pad Your Pocket >>

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Someone should check into the US Postal Service. Their bulk drivers (not the ones who go door to door) are all contracted drivers and considered self-employed. The USPS is the government and they get by calling their drivers "contractors". The contractor has to purchase their own vehicle, insurance on the vehicle, etc but yet they must follow time lines set up by the USPS..where to go, at what time, how to do the job, what to wear, things that are classified as employees not contractors. Most people think these drivers are government employees and make a lot of $$, wrong. They work 365 days a year, thru rain, sleet, snow, -no matter what, but the drivers get no insurance, no holiday pay, no pension, no unemployment, no retirement...nothing. Any attorneys out there willing to take on the US Postal Service and their reasoning for calling these "contractors" what they should be--EMPLOYEES.??

June 22 2011 at 10:41 AM Report abuse rate up rate down Reply
John Woodburn

The facts in this column are nothing new. This is the way business had been done for many years. There is no hidden agenda by an employer or independent contractor. You make a decision in the beginning what type of business you want to run. Hiring independent contractors by an employer helps them keep their operating costs down, instead of hiring permanent employees. An independent contractor knows he's running his own business, and therefore knows well that he has to take care of all the in's and out's of running a business. An independent concractor many times also hires other type independent contractors, and gets the same advantages. So you see, it just keeps going around and around. It's been around for ages.

July 03 2010 at 5:41 AM Report abuse rate up rate down Reply

The employer doesnt pay S.S. ! wow. They want to raise Social security to 70. That gives them 20 years to raise it again & again. Heck, Why dont you idiots just raise it to 75 Now. Because in 20 years thats where it will be. Social security will be Completely trashed by then , & the idiots that set it in motion, Will be Long Gone. VOTE ! Because the idiots That are in office Now, Care nothing For you & your familys Well being.

July 03 2010 at 4:02 AM Report abuse rate up rate down Reply
1 reply to dd's comment

None of the "LAWMAKERS" have to pay SS. They get a huge pension after their terms are done. They don't care if we get screwed by the system or not.

July 03 2010 at 5:49 PM Report abuse rate up rate down Reply

My daughter works at Waffle House. A man whom also worked there was recently fired. He has 3 kids. His father owns a small concrete construction company. I needed a retaining wall built. Father and son came promptly to my home, estimated the job and finished it in 3 days in 100+ degree weather. We paid them. I don't know how they split the money or if unemployment or health benefits were paid. All I do know is that we helped a good guy and his father have work and got a much-needed repair done on our home. By working on my home, several neighbors came by and requested estimates and work. They got 3 new job offers in 3 days and started work on one of them. That's pretty cool.

July 02 2010 at 11:48 PM Report abuse rate up rate down Reply

If my employer only pays me in gum, would i be taken advantage of ?

July 02 2010 at 11:42 PM Report abuse -1 rate up rate down Reply

This is exactly why american workers utilized their right under federal law to unionize after the great depression.During the great depression there were rich and poor.A company or owner could drop you for any reason because they woke up one morning and felt they didn't like you.Your only option would to be to take it to the NLRB National Labor Relations Board.The problem there was the 2 sitting members were republicans,which is not a bad thing.But they were pro business and anti-union.So the employee would have to have a large savings to see their complaint through to mediation or arbitration let alone the NLRB.In other words if you don't have a steadfast case like discrimination you will probably lose.Many americans denounce unions.Mainly because almost all of them were never union,heard rumors of unions,or were non-union and never got hit with the "Well we don't need you anymore speech".Then they hire someone else which fits their bill.The only difference between union and non-union workers is that union workers sign a contract with their employers.If you are non-union or management,you wake up every morning hoping you have a job.Yet you persecute union workers who try to insure that doesn't happen.

July 02 2010 at 11:35 PM Report abuse rate up rate down Reply

If a person is too stupid to know whether they are an independent contractor, they need to keep their McJob.

July 02 2010 at 11:30 PM Report abuse rate up rate down Reply

Do you think you could stop villianizing the employers for a moment. Roll up your sleeves and create some real jobs yourself. Employers take the liability and the capitol risks … for what? To have people like you tell the world how evil it is for us to provide an opportunity and a paycheck for someone. The more government involvement and the more government requirements that reduce the final paycheck the less the hard working people of this country have for their efforts. Stop redistributing their earnings to those people who would rather get a check for doing nothing and those people who would administrate those programs.

July 02 2010 at 10:21 PM Report abuse rate up rate down Reply
t rue american

the author of this article obviously never worked a construction job. We are alldoing what we have to to survive these days. What the hell do i care about my employer paying social security taxes to a bogus system. I am more concerned that at least i have the money to pay my mortgage

July 02 2010 at 9:36 PM Report abuse rate up rate down Reply

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