Gig work and freelance projects have become common ways for professionals to jump-start their careers or augment their wages. Some professionals in Rhode Island are truly independent contractors. They take on projects for multiple companies and control their own workflow. They assume all risk and set their own pay rates. They have total control over the arrangement.
Other times, companies intentionally attempt to misclassify workers who are employees as independent contractors. The company expects the worker to provide ongoing services and micromanages the worker’s job functions, but it claims that the worker is not actually an employee.
Doing so helps the company limit tax obligations and other financial responsibilities associated with hiring workers. Unfortunately, misclassified professionals are the ones who absorb the losses and risk in those scenarios.
What are some of the negative consequences of misclassification as an independent contractor?
1. No overtime pay rights
Self-employed professionals and independent contractors set their own schedules and wages. As such, neither minimum wage nor overtime laws generally apply to them. Misclassified employees may work long hours without appropriate overtime pay because their employers claim they are independent contractors. They even work such long hours that their hourly pay rate dips below minimum wage in some cases.
2. No workers’ compensation or unemployment coverage
Employers generally need to protect their workers from the financial implications of both on-the-job injuries and unexpected job loss. Misclassified professionals terminated by their employers or injured on the job may not be eligible for the benefits they require. They may then need to fight a protracted battle to prove their employers misclassified them.
3. Increased tax burdens
Employers generally cover certain baseline tax contributions for employees and withhold funds to pay for the worker’s share. Independent contractors, on the other hand, are directly responsible for all of their employment-related tax obligations. Especially if the misclassified employee is unfamiliar with the estimated income tax payment system, they may have a large tax debt due when they file their federal return and may not have the funds in reserve to cover what they owe.
Fighting back against employers who misclassify workers can help professionals get the benefits or pay that they deserve. Misclassification may lead to wage claims related to overtime pay or lengthy legal battles pursuing either workers’ compensation or unemployment benefits.