When Is a Contractor a Full-Time Employee?

The IRS estimates that U.S. business owners have misclassified millions of contract workers. Sometimes these misclassifications are in error, but often employers do so to avoid paying for overtime, health insurance, employment tax obligations, insurance coverage, and protection against on-the-job harassment and discrimination.

A job title does not determine whether a position is contract work or full-time employment. States have different rules to determine employment classification. To find out whether you are working as a contractor or employee, talk to an employment law attorney for legal advice.

How Do You Know If You Are a Full-Time Employee?

Lawrence Pearson, a labor and employment attorney at Wigdor LLP in New York, remembers a client who freelanced on a reality TV program as an editor and production assistant. “The arrangement was that people would put in many hours per week on the production of the show, but their work was very closely controlled by the company and by the top people on the show. These were people who were either on set or at the company’s offices for 50, 70, 80, and more hours per week. And yet they were being paid as contract employees.”

Be suspicious if an employer insists on dictating the number of hours you put in, controlling your work schedule, not allowing you to subcontract, or closely monitoring your work. “If they have a non-compete obligation, that’s a real red flag,” says Hope Pordy, a plaintiff-side employment attorney and partner at Spivak Lipton.

Pordy has represented clients who have worked in independent contract positions for a single particular employer for up to 20 years. “Clearly, that’s an abuse,” she says. “They’re working for a single entity for many years, doing the same job right alongside someone who’s being treated as an employee. They’re not going out and engaging in business for themselves, and they’re deprived of all the benefits and privileges of employment. We are creating a very vulnerable workforce.”

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Why Does Proper Worker Classification Matter?

Perhaps you work from home but use a laptop provided by the business you work for. Maybe you make your own schedule, but you’re expected to put in 40 work hours per week and can’t realistically have other clients. Does this mean you’re an employee?

The answer has big practical consequences. If you’re classified as an independent contractor, the company is off the hook to cover minimum wage, payroll taxes, unemployment insurance, workers’ compensation, unemployment tax, sick leave, or ACA-mandated healthcare insurance, and paid time off.

Why Are Workers Misclassified?

According to the IRS, employers misclassified 3.4 million workers as independent contractors way back in 1984. Each year, misclassified workers cost millions in lost state and federal taxes. Certain types of employment are particularly prone to misclassification, such as small business, construction, delivery driving, and off-site services like housecleaning.

There are incentives for companies to misclassify workers. Employers can shield themselves from liability and obligation for the expenses of permanent employees. Misclassified workers allow employers to save approximately 30 percent in labor costs. However, classifying a worker as an employee or independent contractor is not a matter of choice. Federal and state law dictate employee classification. Intentional misclassification amounts to income tax evasion and a violation of labor laws.

Working Remotely Doesn’t Necessarily Mean You’re an Independent Contractor

Just because you work at home, have some flexibility in your schedule, or telecommute doesn’t mean you’re an independent contractor. True self-employed entrepreneurs provide products or services, often under contract, for multiple clients or customers. They set their own hours, use their own tools and supplies, pay their own taxes, and meet mutually agreed-upon deadlines.

Who Is in Charge of Your Work Methods?

It all boils down to who’s in charge of your work methods, Pordy adds. “It’s really a question about who is controlling how that work is getting done.”

In most states, there are a number of factors to determine employment classification. Much of this comes down to whether the business owner has a “degree of control” over the work. Control includes where, when, and how it takes place, and whether the worker is in a work relationship.

If you feel you’ve been improperly classified as an independent contractor, says Pordy, make a list of issues that have arisen while you’re still on the job. Try to get copies of employee handbooks and benefit plans. Work together with other freelancers to ask for the benefits you deserve. Contact the U.S. Department of Labor (DOL). The DOL has a vested interest in cracking down on workarounds that cheat the government of tax dollars for programs like workers’ comp, Medicare, and Social Security.

Pordy adds that you must pursue your rights in a timely manner. You may be entitled to back overtime pay, but only if you file a claim within three years. Key differences in the statutes of limitation apply to employee benefits. State and federal limitations differ.

Trust your instincts. “If you believe that the kind of job you’re doing is typically one that would come with the legal protections and rights that are given to employees,” Pearson says. “If you think that you’re being shoehorned into the independent contractor category, you should absolutely do some research online. Speak with somebody who has experience in the area—whether an attorney or somebody who works for a department of labor-type agency.”

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