Worker misclassification plagues the modern economy. It deprives the federal and state governments of billions of dollars in tax revenue and robs workers of the benefits and security they are entitled to.
As an independent contractor, you will not be covered for workers’ compensation, which is risky. These problems became apparent when California officials sued Uber and Lyft for misclassification. But the issues aren’t limited to ride-hailing platforms. Entertainment production companies, with limited budgets, try to cut corners by misclassifying workers, too.
If you think your employer hasn’t classified you correctly, then read up on federal and state laws. Below, you’ll learn the basics. We’ve also linked the resources so you can find out more about employment relationships under the Federal Law Standards Act (FLSA) and California Assembly Bill (AB 5).
Factors that determine whether you are an employee or Independent Contractor
The Federal Law Standards Act (FLSA) and state laws, such as the California Assembly Bill (AB 5), have varying terms about the classification of workers. The common determinant in both laws for classifying a worker is the degree of control the employer has over the worker.
Employment relationship under FLSA
The U.S. Department of Labor has outlined how to determine an employment relationship under the FLSA. This test is based on economic reality rather than technical concepts. For more information, please see this fact sheet produced by the US Department of Labor.
To make matters easier to understand, the Supreme Court has listed the following factors that are significant for employee or contractor classification:
The extent to which the services rendered are an integral part of the principal’s business.
The permanency of the relationship.
The amount of the alleged contractor’s investment in facilities and equipment.
The nature and degree of control by the principal.
The alleged contractor’s opportunities for profit and loss.
The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
The degree of independent business organization and operation.
Note: The time or mode of pay does not determine employment status.
The characteristics are listed verbatim. Check out the source here.
Employment relationship under California law – AB 5
The California Assembly Bill took effect in January 2020. It codified the California Supreme Court’s decision in the Dynamex case. According to section 1 of the Legislature, the Act aims to ensure that workers are not exploited by their employers due to misclassification. To properly classify a worker as an independent contractor, the Court has proposed the ABC test.
Below are the conditions that have to be met:
The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
The worker performs work that is outside the usual course of the hiring entity’s business; and
The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
The conditions are listed verbatim. For details about the ABC test, please visit this page.
AB 5 faced a ton of criticism from industries, contract workers, and freelancers because of its rigidity. It was revised and AB 2257 took effect on 4 September 2020. The entertainment industry didn’t get any leeway in terms of worker classification. That leaves virtually zero jobs in show biz that can legitimately take on an independent contractor. Now that you know that the law is on your side, let’s take a look at your options if you’ve been misclassified.
What to do if you’ve been misclassified
Discuss the matter with your employer
Consult an employment lawyer
Contact the IRS
Claims and lawsuits
File an unemployment insurance claim
File a workers’ compensation claim
File a wage claim with the Labor Commissioner’s Office
File a lawsuit for multiple claims and violations
1. Discuss the matter with your employer
If you’ve been working with a production company for a while and have a good relationship with them, you can ask them to review your classification. If the company refuses to classify you as an employee, try to get their reasoning in writing. If you approach a production company that insists on paying you as an independent contractor when you know your status should be “employee”, then walk away.
2. Consult an employment lawyer
If you received an explanation from your employer about your classification, you can contact an employment lawyer to check if it holds up. If it does not hold up, you can discuss what action you could take against the company.
3. Submit IRS form SS-8
If your employers have refused to classify you according to the law, you can fill and submit IRS form SS-8, (Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding). There is no fee for filing it and doing this may prompt the IRS to conduct a full employment tax audit of the company.
Keep in mind that the IRS may let your employer know it was you who tipped them off.
You could face retaliation as a result. There are steps you can take if your employer starts acting hostile toward you. More on this later.
If a production company is found guilty of worker misclassification, they are liable to pay back taxes, interest, and penalties. Apart from the penalties related to wage violations, there are civil penalties between $5,000 and $25,000 per violation for willful misclassification under California Labor Code section 226.8.
4. File an unemployment insurance claim
If a production company misclassified you and then fired you, you can file an unemployment insurance claim. You’ll have to explain that you were classified as an independent contractor. The authorities will launch an investigation and if they conclude that you were misclassified, your employer will have to pay back premiums, will be fined, and you’ll be entitled to unemployment insurance.
5. File a workers’ compensation claim
An employer is not obligated to cover on-the-job injuries for independent contractors. So if you were misclassified and got injured on the job, you should file a workers’ compensation claim. And be sure to meet your state’s deadlines for reporting. Here’s the form for filing a workers’ compensation claim.
6. File a wage claim
You can file a wage claim with the Labor Commissioner’s Office if you’ve experienced wage theft. A wage claim lets you collect unpaid wages or benefits. Find out how to file this claim here.
7. Report a Labor Law Violation
If the problem of misclassifying workers is rampant in the company you’re working for, you can file a report to alert the authorities of widespread labor law violations. Find out how to report here.
What to do if you face retaliation from your employer
Your company may retaliate against you if you complain about your employment relationship or file a claim. If that happens, know that there are additional steps you can take to push back. If, for example, your employer fires you or doesn’t pay overtime, you can file a discrimination/retaliation complaint with the Labor Commissioner’s Office. You could also file a lawsuit against the company instead of filing a complaint. Find out more here.
How production companies circumvent the laws regarding worker classification
There are some cases where producers can subcontract with a contractor that has its own employees. If the contractor can’t prove the employees are paid as employees and covered for workers’ compensation, Revolution insists on paying the employees through our payroll service to make sure they’re treated properly as employees and taxes are paid. If the producer does not do that, there is a risk, albeit a small one, that the contractor isn’t paying his employees properly and it could come back to bite production.
For more information on worker misclassification and advice, contact us.
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