If you perform work for a business, your status as an employee or independent contractor makes a difference in what benefits you can expect to receive, including Social Security credits toward your retirement. Employees are paid recurring wages, and independent contractors are generally paid by the project, but your situation may not be so simple.

State and federal laws come into play for employees who are being treated as independent contractors. If you need clarification on the difference, a qualified attorney at our firm can help. A Sandusky employee misclassification lawyer could review your situation and plan a course of action.

Differences between Employees and Independent Contractors

Employers sometimes intentionally misclassify employees as independent contractors because it is cheaper for them. Employees are entitled to benefits such as holiday and vacation pay, sick days, and overtime pay at a higher rate that costs employers time and money to provide. Independent contractors do not receive benefits like these.

If employees are laid off, they are generally covered by unemployment insurance, while freelancers are not. Additionally, withholdings for Social Security and other deductions appear on employees’ W-2s, whereas freelancers are issued Form 1099s from which taxes are not withheld.

State and Federal Government Consider Employee Status

Employees injured on the job or who contract job-related illnesses, such as those who handle asbestos, are generally entitled to medical benefits and lost wages through the Ohio Bureau of Workers’ Compensation (BWC). However, employees misclassified as independent contractors would not receive these benefits in the event of an injury.

Because the federal government calculates Social Security payments based on payroll withholdings, misclassifying an employee as an independent contractor affects the benefit amount he or she can collect at retirement. Employers who misclassify employees as independent contractors risk steep fines. A Sandusky attorney can help workers determine whether their employers have misclassified them.

Fair Labor Standards Act Guidelines

The United States Department of Labor (DOL) set parameters under the 2021 Fair Labor Standards Act (FLSA) for classifying employees and independent contractors. 29 Code of Federal Regulations Parts 780, 788, & 795 set forth an economic reality test posing two questions to determine employment status: How much does an employer control specific work? And how likely is it that the worker’s initiative will directly profit the worker?

A Sandusky lawyer could apply other DOL identifiers in an employee misclassification case, including whether specific skills are required to perform the task, whether the relationship between the employer and worker is long or short term, and how the worker and employer interact. A Tittle & Perlmuter attorney can also help by contacting the Internal Revenue Service (IRS) to levy penalties and file a lawsuit on a misclassified employee’s behalf.

IRS Penalties for Misclassification

The IRS can levy penalties on the employer, including 100 percent of the matching Social Security and Medicare payments (FICA) and an extra 40 percent of the employee’s contribution. Interest will also be levied on the misclassified salary. If the IRS discovers fraud by the employer, other penalties can include an additional 20 percent of all wages paid to the misclassified employee and 100 percent of FICA payment, including the employee’s contribution. The IRS also levies $1000 fines for every misclassified employee, as well as imprisonment up to one year.

What Relief Can the Court Grant?

Besides the IRS penalties, a misclassified employee can ask a Sandusky lawyer to file a lawsuit against their employer. If a worker and their legal counsel can effectively prove that they were misclassified by their employer, the courts may award the following remedies:

  • 401(k) employer contributions to retirement benefits
  • Paid vacations and break time
  • Unpaid overtime
  • Missed investment benefits such as stock options
  • Health insurance

Because a misclassified employee loses benefits and contributions to future Social Security payments, a local lawyer should become involved as soon as possible.

Let a Sandusky Employee Misclassification Attorney Help

Although the status of most workers is apparent, knowing whether a worker is an employee or independent contractor may not always be obvious.

If you have questions about your employment status and how it affects your rights, our Sandusky employee misclassification lawyers are standing by to answer them. Call today to schedule your initial consultation.

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