With direct deposit, many of us rarely look at our paystub. We assume we’ve been paid minus any taxes and deductions for the hours we’ve worked.
But what if that’s not true? What if your employer has misclassified you as an independent contractor? In that case, you may be losing out on thousands of dollars each year.
The billion-dollar problem
Every year, millions of workers across the country are misclassified as independent contractors instead of employees. Approximately 10-30% of employers misclassify their employees, either intentionally or accidentally. This practice harms the employees and causes the United States government to miss out on billions of dollars in tax revenue.
How are employees and independent contractors different? The independent contractor, also known as a gig worker, is often hired to complete a particular task. They are self-employed, meaning labor laws don’t protect them regarding minimum wage, overtime pay and paid time off. They also don’t receive any benefits, such as health insurance or a 401(k). In addition, they are required to pay both the employee and employer portion of Social Security and Medicare taxes.
On the other hand, employees are paid a regular salary, including time and a half for overtime pay. They are protected by the California Department of Industrial Relations, which ensures all employees receive the minimum wage. The employer also withholds income taxes, Social Security and Medicare taxes from the employees’ paychecks and contributes to these taxes on behalf of the employees. The employee is also covered by workers’ compensation, meaning if they are hurt on the job, their medical expenses will be covered and they will receive a portion of their lost wages while they recover.
While employee misclassification can occur in any industry, unethical employers target vulnerable populations, such as young workers, undocumented immigrants, migrant and seasonal workers and people who work in low-paying manual labor jobs.
We must look out for vulnerable individuals whom employers may exploit. If you are being misclassified as an independent contractor, or know someone who is, you need to reach out to someone who can review your case and help you receive the compensation you earned.