Employee or Independent Contractor?

The Underlying Cause of Many Lawsuits 

About 20% of employers misclassify their employees as independent contractors. That is about 3.4 million misclassified employees. This is a recurring issue and the cause of many lawsuits in the past decade.

There are many differences between an employee and an independent contractor. One of the main differences is that employers are not obliged to pay social security and unemployment insurance taxes for independent contractors, but they do have to pay for employees. Independent contractors are also not required to be paid a minimum wage and are not entitled to unemployment compensation from employers.

Why would an employer misclassify their employees?

One of the most common reasons to classify someone as an independent contractor rather than an employee is to avoid paying Social Security and unemployment insurance. When the employer misclassifies their employee as an independent contractor, it cuts all legal responsibilities to them. This means that employers do not have to provide minimum wage or follow the work hour laws. They can also avoid the civil right laws set by the Employment Opportunity Commission (EEOC), which only apply to employees- not independent contractors. Another reason is to avoid providing health pension plans.

How often does this happen?

While 20% of employers misclassify their employees, there are some jobs where this happens more often. For example, exotic dancers. Many employers at clubs purposefully misclassify dancers as independent contractors, despite working long hours and regular schedules. There have been many lawsuits between exotic dancers and their employers because employers do not provide paid leave or health insurance.  In the many cases that showed dancers working like employees, even though they were independent contractors, the court ruled in their favor and protected their rights. The results of the exotic dancer cases have had an impact on many other professions, such as Uber drivers, where workers are labeled as contractors. Although many cases involving misclassification has protected workers rights, misclassification is still an issue that can take advantage of you if you’re not careful.