With the current job market, more people are turning to gig work and contracting to make ends meet. Being a freelancer or independent contractor can be rewarding, but it’s also a challenge that requires a lot of diligence. Some employers take advantage of their contractors because they know people are looking for work. In some situations, employers hire people as independent contractors when in reality these workers should be classified as employees.
Our employee rights lawyers in New York want to consider what it means to be an independent contractor who gets a 1099 around tax season vs. an employee who gets a W-2. We’ll explain what that means in practical terms, how that impacts your income, and what signs to watch for to determine if you’ve been misclassified.
If you believe that you’ve been misclassified as an independent contractor by your employer, our attorneys can help. For a free and completely confidential consultation with our workers rights attorneys, contact our New York law office today.
Key Takeaways:
- A W-2 is an IRS tax form given to employees of a company. A 1099 is an IRS tax form given to independent contractors/self-employed individuals who perform services for a company.
- If you are an independent contractor rather than an employee, you will not be eligible for employer-provided benefits and certain legal protections. This will also affect how you file and pay your taxes.
- Some signs that you’ve been misclassified as an independent contractor include your employer controlling your hours or daily schedule, your employer providing the equipment or vehicles to perform a job, your employer asking you to adhere to company policies, and needing to ask your employer for permission to do work for another company.
- Misclassification as a contractor could mean you’ve missed out on employer-provided health insurance, overtime pay, workers’ compensation benefits, vacation or sick days, and other benefits of employment.
- A workers’ rights attorney can help you seek compensation for being misclassified as a contractor.
What Is W-2 vs. 1099 for Workers in New York?
W-2s and 1099 are types of tax forms. Let’s explain each in basic terms below.
What Is a Form W-2?
A W-2 (Wage and Tax Statement) is a tax form that reports wages paid to employees and the federal taxes withheld from their pay.
Employers must fill out a W-2 for every compensated employee.
What Is a Form 1099?
A 1099 is a tax form used to report payments to independent contractors (among other things).
When a 1099 is used to record pay to an independent contractor, the worker will typically receive a 1099-NEC (Non-Employee Compensation).
Can I Be Both a 1099 Independent Contractor and a W-2 Employee for the Same Company?
Yes, potentially. You may be an employee performing one kind of role at a company, but you could also be an independent contractor performing a different role at the same company. In these situations, the two kinds of jobs performed must be distinct and unrelated.
One example is being employed at a company to stock shelves but doing freelance graphic design work for the same company.
You can also be both a W-2 employee and a 1099 contractor in a tax year if you provided services for a company as a non-employee but were then hired by that company later on as an employee.
Independent Contractor vs. Employee: Why This Classification Matters
Here are some of the most crucial ways an employee/independent contractor classification can impact your life:
- Withheld Taxes on Your Paycheck: Employees have federal and state taxes withheld on their paycheck. Independent contractors need to pay these taxes themselves. (More on this point in a moment.)
- Employer-Provided Benefits: Employers tend to provide employees with health insurance, sick days, vacation time, and retirement plans. Companies do not offer these benefits to contractors.
- Eligibility for Overtime Pay: Only employees are eligible for overtime pay from their company, though this depends on whether they are exempt or non-exempt from OT pay.
- Control Over Work: Employees generally have to abide by a set schedule while independent contractors have much more flexibility.
- Legal Rights and Protections: As an employee of a company, you will have much stronger legal protections than an independent contractor. This includes a guaranteed minimum wage and access to workers’ compensation and unemployment.
How Employee Misclassification Impacts Your Taxes: The Self-Employment Tax Burden
Employers and employees tend to split the cost of Social Security and Medicare taxes; independent contractors need to pay these taxes themselves in full. This comes with many drawbacks for independent contractors, which include:
- Paying a 15.3% self-employment tax to cover Social Security and Medicare
- Paying estimated taxes (both state and federal) on a quarterly basis to avoid interest or fines
- Keeping records of income, deductible expenses, and all quarterly taxes paid
The most important point is that as an independent contractor, you wind up paying more in taxes than if you were an employee.
Many people who do freelance work are initially unaware of this increased tax-burden until they file their taxes. This sometimes means depleting savings, going into debt to pay the taxes they owe, or setting up a payment plan to pay off the taxes owed.
How the Law Determines If You Are an Independent Contractor or an Employee
The IRS considers three forms of employer control when it comes to determining whether someone is an employee or a contractor:
- Behavioral Control: This refers to whether a company controls what a worker does and how the worker does their job.
- Financial Control: This refers to the business aspects of a worker’s job that are controlled by the company (e.g., payment, vacation time, insurance, supplies provided, etc.).
- Nature of Employment Relationship: This refers to the contract with the employer, any benefits, and if the work performed applies to a key part of the business.
Questions New York Workers Can Ask Regarding Their Work and Work Duties
If you’re employed by a company and are not sure whether you’re an employee or independent contractor, ask yourself these questions:
- Does your employer assign you specific tasks to perform?
- Does your employer control how your work will be performed?
- Does your employer control your daily schedule and when certain work is performed?
- Did you undergo any extensive training from the employer?
- Do you receive close supervision while performing your work?
- Do you use vehicles, tools, computers, or other equipment provided by your employer?
- Are you required to work exclusively for your employer?
- Do you need to ask your employer for permission to work elsewhere?
These questions apply to workers who do their job on-site or do their work remotely. In fact, it’s possible that some remote workers are actually remote employees rather than independent contractors. A New York employee rights attorney can let you know if you’ve been misclassified.
Signs You’ve Been Misclassified as an Independent Contractor
Dovetailing off the questions above, here are some of the telltale signs that you’re an employee who’s been misclassified as an independent contractor.
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- You Use the Company’s Equipment: If the company provides you with the tools or equipment to do your job.
- Your Employer Controls Your Schedule: If the company asks you to adhere to certain work hours or to ask permission for time off.
- Your Have Detailed Work Instructions: If the company provides extensive instructions or close supervision of your work.
- You Only Work for One Company: If you are only allowed to work for one company or need permission to accept additional work from other employers.
- You Must Follow Company Policies: If you are told to stick to the employee handbook, attend staff meetings, or comply with HR policies.
- You Are Paid Like an Employee: If you are paid weekly or biweekly rather than by the project, the task, or the milestone.
For additional information, we encourage you to check out this resource on employee misclassification from the U.S. Department of Labor.
Why Do Companies Misclassify Employees as Independent Contractors?
As noted by the NYS Department of Labor, some companies intentionally misclassify employees as independent contractors to avoid paying taxes. Misclassification is also a tactic to dodge compliance with state and federal minimum wage laws, overtime pay laws, insurance obligations, temporary disability benefits, workers’ compensation, and unemployment insurance.
In essence, misclassifying an employee as a contractor is a method of depriving workers of their legal protections. This also gives these unscrupulous employers a financial advantage over law-abiding businesses that treat their employees properly.
Thankfully, you have legal options if you are an employee who was misclassified as an independent contractor. Our New York labor law attorneys can help.
What You Should Do If You Believe You Are Misclassified as an Independent Contractor
If you feel that you’re an employee who has been misclassified as an independent contractor, take the following steps:
- Review Your Employment Contract: Check your employment contract for any specific language about your classification and working relationship.
- Retain All Work-Related Documents and Communication: Hold on to any paystubs, invoices, calendar invites, work schedules, lists of duties, and any emails or messages relevant to your work and the company you work for.
- Speak with a New York Employee Rights Lawyer: Discuss your situation with an employment law attorney. A legal professional can answer your questions, review your situation, and let you know what steps to take next.
Can an Employer Retaliate If You Question Your W-2 or 1099 Status?
No. You are protected by law from retaliation from your employer if you ask about your classification as an employee or independent contractor.
This includes protection from retaliation if you report the company for labor law violations related to employee misclassification.
How Long Do I Have to Sue for Worker Misclassification in New York?
This really depends on the nature of your claim. Under New York Labor Law (NYLL) § 198(3), you have up to six years to file a claim for unpaid wages and unpaid overtime.
However, there may be more to your misclassification case beyond unpaid wages. There may be violations of an employment contract. You could be owed money for the self-employment taxes you paid when a portion of these taxes should have been withheld for you. And in some misclassification cases, you may have less than six years to take legal action.
That’s why it’s best to contact a New York wage and hour attorney as soon as you feel like you’ve been misclassified.
Why New York Workers Trust The Bell Law Group
Established in 2002, The Bell Law Group has built a strong reputation for representing workers in both the public and private sectors. Based in New York, our law firm helps workers from diverse industries exercise their rights and legal protections.
- Our Focus Is Employment Law and Employee Rights: The Bell Law Group focuses on employment law issues throughout New York and the rights of federal employees all over the country. This includes help with workplace discrimination, workplace sexual harassment, equal pay claims, and much more.
- Our Lawyers Have 100+ Years of Combined Experience: The team at The Bell Law brings more than a century of combined experience practicing law. Our workers’ rights attorneys help you gather supporting documents, seek benefits, and dispute matters that could put your employment or financial future in jeopardy.
- We Have a Record of Fighting for New York Workers: The Bell Law Group gets results for state and federal workers in employment law cases. This includes a $350,000 settlement for unpaid overtime and other labor law violations. We encourage you to read through our successful case results to get a sense of our commitment to working people all over New York.
- All Consultations Are Free, Confidential, and No Obligation: A lot of employees are afraid of speaking with a lawyer because of the cost and the risk of retaliation. You don’t have to worry about that with The Bell Law Group. We take your worries to heart. Our firm provides free and confidential case evaluations with no obligation. All details discussed will remain private.
Worried You’ve Been Misclassified? Contact The Bell Law Group
If you work hard and believe you’ve been misclassified as an independent contractor, our New York labor attorneys want to hear from you. The team at The Bell Law Group will let you know if you really are an employee and help you get the pay and benefits you’re owed. For a free and confidential consultation, contact our New York employee rights law firm.
