Myths About Misclassification

Myths and Facts

My boss calls me an independent contractor, not an employee. But it really doesn't matter as long as I get paid.
If I am classified as an independent contractor, I am not eligible for unemployment insurance (UI).
I received a 1099 tax form from my employer, and this makes me an independent contractor.
I have been told that I am an independent contractor, this means that I am not entitled to any of the benefits and protections provided to people who meet the definition of an "employee".
I am an independent contractor because I signed an independent contractor agreement.
I am not on the payroll, so I am not an employee.
I have my own employer identification number (EIN) or paperwork stating I am performing services as a Limited Liability Corporation (LLC) or other business entity. This means that I am an independent contractor.
My employer wants me to be an independent contractor, and that means I am not an employee.
I telework or work off-site, so I am an independent contractor.
I have been an independent contractor for years; this means I will continue to be an independent contractor.
I am an independent contractor because it is established practice in my industry to classify workers like me as independent contractors.

MYTH #1: My boss calls me an independent contractor, not an employee. But it really doesn't matter as long as I get paid.

FACT #1: If you are misclassified as an independent contractor, you may be denied benefits and protections to which employees are legally entitled. Misclassification also has negative effects on businesses.

Typically, only workers who are “employees” have access to important benefits and protections under certain federal, state, and local laws. Among others, these benefits and protections may include:

The right to minimum wage, overtime pay
The right to unpaid, job-protected family and medical leave
Certain anti-discrimination and anti-retaliation protections
The availability of workers’ compensation if you are injured on the job
The availability of unemployment insurance (UI)
Employer payment of half of the Social Security and Medicare Taxes

Misclassification also hurts law-abiding business owners who don’t get to compete on a level playing field when some employers wrongly classify their workers as independent contractors and thereby lower their costs unlawfully. In addition, federal and state governments lose billions of dollars each year in tax revenue as a result of misclassification.

MYTH #2: If I am classified as an independent contractor, I am not eligible for unemployment insurance (UI).

FACT #2: You may still qualify for UI even if you are classified as an independent contractor.

Each state follows its statutes, regulations or policies to determine whether an employer-employee relationship exists. Even if you are considered to be an independent contractor by a business entity the state UI agency will make a determination as to whether that classification is correct under its laws or whether you are an employee and eligible for UI. Being classified as an independent contractor does not prohibit you from seeking UI.

To determine if you may be eligible for UI, please contact your state UI agency. To locate your state UI agency, please see this list of state UI agencies. To learn more about UI eligibility and misclassification, please see the Worker Misclassification heading under the Unemployment Tax Topics page.

MYTH #3: I received a 1099 tax form from my employer, and this makes me an independent contractor.

FACT #3: Receiving a 1099 does not make you an independent contractor.

You may be an independent contractor if your work does not fall within a law’s definition of employment. Similarly, you are an employee if your work falls within a law’s definition of employment. Receiving a 1099 tax form is simply the result of how your employer classifies you for federal tax purposes, but the form itself does not mean you are correctly classified as an independent contractor for federal tax purposes. And, receipt of a 1099 is irrelevant to determining whether you are an employee under the FLSA, FMLA, or MSPA.

Example: Taxes

Under federal tax laws, you are not an independent contractor for tax purposes just because you receive a 1099. What matters is whether the person receiving your services has the right to control how you perform your work. To learn more about whether you are an independent contractor or employee for federal tax purposes, please visit the IRS’ website.

Example: Minimum Wage, Overtime, and other FLSA Protections

Receiving a 1099 does not make you an independent contractor under the FLSA. In fact, whether you receive a 1099 is irrelevant. Under the FLSA, you are an employee if your work indicates you are economically dependent on an employer. On the other hand, you are an independent contractor if, as a matter of economic reality, you are in business for yourself. It is important to remember that you can be an employee under the FLSA even if the IRS considers you an independent contractor. To learn more about whether you are an employee or independent contractor under the FLSA, please visit the DOL Misclassification Initiative page.

To better understand how different laws determine whether you are an employee and the benefits and protections that these laws provide to employees or what they require of employers, please see Myth #1.

MYTH #4: I have been told that I am an independent contractor, this means that I am not entitled to any of the benefits and protections provided to people who meet the definition of an "employee".

FACT #4: Even if you are a legitimate independent contractor under one law, you may still be an employee under other laws.

The protections available under federal and state employment laws are generally available only to “employees,” and are generally not available to independent contractors. Federal laws have differing definitions of employment. Under the Fair Labor Standards Act (FLSA), the Migrant and Seasonal Agricultural Worker Protection Act (MSPA), and the Family and Medical Leave Act (FMLA) most workers are employees, but the definitions in other laws may be a little less broad. Therefore, it is possible to not be an employee (and be, for example, an independent contractor) under one law, but be an employee under a different law (especially the FLSA, FMLA, or MSPA).

To help you better understand how different laws define employment as well as the benefits and protections these laws provide employees, please see the table below:

How Different Laws define employment, with benefits and protections for employees
Law:	Benefits, Protections and Employer Requirements:	More Information:
Fair Labor Standards Act (FLSA)	Minimum wage Overtime pay The FLSA also requires employers to keep employment records.	The FLSA's definition of employment was designed to be broad and provide expansive coverage for workers. As a result, most workers are employees under the FLSA. For more information, visit the FLSA Overview page and the DOL Misclassification Initiative page.
Migrant and Seasonal Agricultural Worker Protection Act (MSPA)	Wages Safe housing and transportation Disclosure about the employment	MSPA uses the same broad definition of employment as the FLSA. For more information, visit the MSPA website and the DOL Misclassification Initiative page.
Family and Medical Leave Act (FMLA)	Up to 12 weeks of unpaid, job-protected leave for family and medical reasons Continuation of health insurance when employees take FMLA leave	The FMLA uses the same broad definition of employment as the FLSA but has additional eligibility requirements in order for employees to be entitled to job-protected leave. For more information about FMLA, visit the FMLA Overview page and the DOL Misclassification Initiative page.
State Workers' Compensation Laws	Workers' compensation if you are injured on the job	The employment status of workers who are injured while employed by private companies or by state and local governments is determined by each state's workers' compensation board.
Internal Revenue Code	Income tax withholding Withholding and payment of Social Security taxes and Medicare taxes	The federal tax rules generally focus on the work relationship that exists between the worker and employer and whether the employer has the right to control how work is done, looking at many facts and circumstances. Please visit the Internal Revenue Service's "Independent Contractor versus Employee" page to learn more.
State Unemployment Insurance Laws	Unemployment insurance (UI) if you are laid off or otherwise separated due to non-disqualifying reasons and meet other eligibility requirements	Most state laws contain strict tests to determine whether there is sufficient absence of control by an employer that the worker is not an employee but an independent contractor. Information and contacts for state UI agencies are available at: http://www.ows.doleta.gov/unemploy/agencies.asp.

MYTH #5: I am an independent contractor because I signed an independent contractor agreement.

FACT #5: Signing an independent contractor agreement does not make you an independent contractor.

As a condition to being allowed to work, employers sometimes require workers to sign an agreement stating that the worker is an independent contractor. Under the FLSA, FMLA, and MSPA, you are an employee if, as a matter of economic reality, your work indicates that you are economically dependent on an employer, and you are an independent contractor if you are in business for yourself. Any label that you or the employer give to the relationship, even in an agreement signed by you, is irrelevant. Instead, what matters is whether the reality of the situation indicates that you are economically dependent on the employer (an employee) or in business for yourself (an independent contractor).

Similarly, for federal tax purposes, signing an independent contractor agreement does not make you an independent contractor. It may be just one relevant fact in determining the relationship of the parties.

MYTH #6: I am not on the payroll, so I am not an employee.

FACT #6: Even if you are not on the payroll, you may still be an employee.

Whether you are on the payroll does not determine if you are an employee or an independent contractor. You are an employee if your work falls within a law’s definition of employment. On the other hand, you may be an independent contractor if your work does not fall within a law’s definition of employment.

Some laws require employers to keep employment records for their employees. However, your employer may not be fulfilling these obligations if you are misclassified as an independent contractor, if you are not on the business’ payroll, or if you are paid in cash “off-the-books.” In these cases, you may want to create your own records of your employment, including your hours or days of work, how much you are paid, how you are paid, and when you are paid. You will be responsible for paying federal income taxes on your compensation even if you are misclassified.

Example: The FLSA’s Recordkeeping Requirements

The FLSA requires employers to maintain employment records that include information about your identification, hours that you work, and wages that you earn. For information on the FLSA’s recordkeeping requirements, please visit Fact Sheet #21: Recordkeeping Requirements under the FLSA. You may also wish to create a record of hours you work using the Department of Labor’s Timesheet App or Work Hours Calendar.

MYTH #7: I have my own employer identification number (EIN) or paperwork stating that I am performing services as a Limited Liability Corporation (LLC) or other business entity. This means that I am an independent contractor.

FACT #7: An EIN or paperwork stating that you are performing services as an LLC or other business entity does not make you an independent contractor.

Having your own EIN or paperwork stating that you are performing services as an LLC, sole proprietorship, or other type of business does not by itself make you an independent contractor. This is particularly true if your employer requires you to file business paperwork and obtain a business name to get the job or to receive payment for your services. You are an employee if your work falls within a law’s definition of employment, regardless of how your relationship is characterized on paper. Under the FLSA, FMLA, and MSPA, how you or the employer characterizes your relationship is irrelevant to determining whether you are an employee; what matters is whether the reality of the situation indicates that you are economically dependent on the employer (an employee) or in business for yourself (an independent contractor). For federal tax purposes, how you and the employer characterize the relationship is only one fact considered among many in determining whether the employer has the right to control how you do your work.

MYTH #8: My employer wants me to be an independent contractor, and that means I am not an employee.

FACT #8: Your employer cannot misclassify you for any reason.

Your employer cannot classify you as an independent contractor just because it wants you to be an independent contractor. You are an employee if your work falls within a law’s definition of employment. On the other hand, you may be an independent contractor if your work does not fall within a law’s definition of employment. Under the FLSA, FMLA, and MSPA, how your employer wants to characterize you is irrelevant to determining whether you are an employee. What matters is whether the reality of the situation indicates that you are economically dependent on the employer (an employee) or in business for yourself (an independent contractor). For federal tax purposes, many facts are considered in determining whether the employer has the right to control how you do your work.

MYTH #9: I telework or work off-site, so I am an independent contractor.

FACT #9: You are not an independent contractor simply because you work off-site or from home.

Working away from your worksite, such as from your home, does not necessarily make you an independent contractor. Both employees and independent contractors may telework or work off-site. Similarly, both employees and independent contractors may work at a work site.

You are an employee if your work falls within a law’s definition of employment. On the other hand, you may be an independent contractor if your work does not fall within a law’s definition of employment. Your employer may still control or have the right to control how you do your work under the relevant law even if you work off-site and are not subject to constant supervision.

MYTH #10: I have been an independent contractor for years; this means I will continue to be an independent contractor.

FACT #10: Being a bona fide independent contractor in the past does not mean you will always be an independent contractor.

Even if you have been a legitimate independent contractor for a long time, you could become an employee in the future if the nature of your work relationship changes. You are an employee if your work falls within a law’s definition of employment. On the other hand, you may be an independent contractor if your work does not fall within a law’s definition of employment. The present nature of your work relationship (and not your previous status) determines whether you are an employee or not.

MYTH #11: I am an independent contractor because it is established practice in my industry to classify workers like me as independent contractors.

FACT #11: “Common industry practice” is not an excuse to misclassify under the FLSA.

Regardless of the industry practice, if your work falls within a law’s definition of employment, you cannot be classified as an independent contractor and denied your rights as an employee under that law. Under the FLSA, FMLA, and MSPA, what matters is whether the reality of the situation indicates that you are economically dependent on the employer (an employee) or in business for yourself (an independent contractor). For federal tax purposes, what matters is whether the employer has the right to control how you do your work (however, there is a special relief provision for federal employment tax purposes under which industry practice may be relevant). To better understand how different laws determine whether you are an employee and the benefits and protections that these laws provide to employees or what they require of employers, please see Myth #1.